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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: PeterCS who wrote (12258)1/26/2000 5:48:00 PM
From: Herm  Read Replies (1) of 14162
 
Good question Peter. The only way I can answer your concerns is to stress that the LEAPs strike price relative to the parent stock will generate a delta value accordingly. Thus, the more ITM the LEAP to the stock price, the more closely it will follow that stock price. That is why I tend to only buy deep into the money LEAPs as possible.

Again, I only would do a spread when when 1. my nut plus the LEAP strike price is below the parent stock price. 2. I can write spreads (CC) at higher strike prices that exceed my B.E. and not be called out soon. That is another reason why I only write 3 months or more out! Since, I would only write those spreads when I feel the stock is starting to head downward, those CC premies are paying for my downside insurance. The hedge in this case is fantastic!

Score another profit hit using the premies to buy sideshow PUTs and you are really racking in some high returns. Again, using your CCer's bucks and not yours.

Summary! Stick to quality stocks you would not mind holding for a while. Buy the most intrinsic value as possible when picking up LEAPs. Avoid short term call spreads unless you are watching the stock daily AND you are a very strong technical chart reader!
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