Howdy Jaytee,
The process always starts with reviewing those charts and taking notice of the RSI, OBV, BBs. Of course, some fundamental data like dividend dates, earnings dates, general economy trend and the impact on the particular stock. Next? The next best thing to being a mind reader!
CALCULATE THE RISK IN LEAP SPREADS or CCs
The higher ROI come with more risk for sure. The best way to quickly and painlessly compare those risk is simple. No one trading options should be without the FREE and VERY POWERFUL software simulator distributed by the CBOE. They call their software The Options ToolBox. Here is the link for that free software:
cboe.com
WHAT TO DO NEXT?
My Leap Spread WINs Reports are filtered and prepared nightly for viewing. It's a time saver and a way to narrow the group down from 22,000 possible combinations to only 300 of only the best ROI. Of course, there are different risk levels for different folks. That is where the software comes in....http://www.coveredcallswins.com/promo/index.html
Now, my folks get an Excel spreadsheet which wacks our web site for the LEAP spread data and they could do additional number crunching with the spreadsheet by doing a cut and paste.
Back to the Options Toolbox. Here is what you do...
1. Load the software and click on the menu for LEAPs simulations.
2. Enter the "settings" with the current stock price.
3. Now enter the long LEAP price, expiration month, and strike price. The delta and the rest will calculate by itself. That is another advantage to the software. You see how much your LEAP will move dollar for dollar with the stock price. It is common to have a LEAP delta of +70 while your out of the money call you sell might have a -40. You have a major advantage as the LEAP spread moves into the money. You would have to be brain dead not to know when to take action for damage control.
And, you can save the settings and move the dates everyday and watch the status of your position. Thus, you can see the actual dynamics of delta, price, and the spread value change. A great learning tool. Eventually, you will be able to do this in your head and feel the probabilities because you know instinctively from practice what the outcomes may be.
4. You enter the short side of the call cost and strike price and experation month. Likewise, the delta and price will calculate.
5. You can move the date on the software to see what the impact will be on the position. Further, you can ploy the results like the deltas and the profit and loss.
The point is this! If you plot both of the stocks that you mentions or any others. You will be able to see what the remaining value is for the LEAP. The MCD had an expiration in JAN. and the call itself had an expiration in December. Thus, you will see if the price of the stock does not move up enough by December, your LEAP will start to lose time value quickly. If the stock move quickly early the intrinsic value and the volatility value may dictate that you cover at a paper loss for the call and cash out the LEAP before the Dec. expiration. Why? Because you are plotting time against value.
The final thought! This may sound complex. It's not if you use the simple software to learn about these dynamics. Using the software and applying it leads me to believe that it practically anyone can earn 100% ROI doing LEAPs Spreads.
Try it! Let me know! |
