(Rerun) From L. McMillan's & R. Arms' sites...
armsinsider.com
>>>No one can successfully predict the market in every case so the key is to take small profits regularly and prevent losing plays from significantly eroding capital.
Losses are bound to happen, they are inevitable; but that shouldn't keep you from profiting on a regular basis.
The fact is, it's very difficult for most investors to close out losing plays early.
Successful traders understand there is NO reason to hang on to a LOSING position when there are so many other profitable plays that deserve their time and money. <<<
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Lawrence McMillan:
...from "Options As A Strategic Investment", p. 377:
>>>Spreads Using LEAPS:
LEAPS are so long-term and therefore so expensive, one is generally taking on a large debit in such a spread and may have substantial risk if the stock performs adversely.<<<
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>>>"Q&A w/MAC", optionstrategist.com
Category: Trading and Strategy Number: 311 12/18/99
Question:
What do you think about writing covered option calls against your long leaps. Ie. writing the near term month after month and how best to know when to write the calls each month? J.E.
Answer:
This is a strategy that is attempted by most LEAPS buyers at some time, usually with only limited success.
First and foremost, you must realize that you are limiting your upside.
So, if a big move to the upside occurs, you will have to either buy back the written call for a big debit (i.e., loss) or close out your entire spread.
Secondly, knowing "when to write calls each month" is an impossible thing to determine.
...If you could do that, you'd be rich quickly.
Usually, you will find the short-term calls are only expensive for a few months, at most, and then they become cheap.
If you continue to write them when they are cheap, you are not getting any kind of statistical edge at all and will probably find the stock suddenly moving against you.
I think this strategy is basically the same as covered call writing -- except the downside is more limited with the LEAPS option.
Covered call writing is not a good strategy in this current, volatile, market unless you plan to allow the stock to be called away.
Therefore, this LEAPS strategy isn't much better. <<< |
