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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Saul Seinberg who wrote (3265)1/16/2002 4:31:13 PM
From: Dominick  Read Replies (2) of 5205
 
Dale was considering whether to buy the stock and write a call or buy the leap and write a call.

IMHO, the former strategy is more expensive and has more risk because it requires him to buy the stock plus the risk of that stock crashing due to bad news or whatever. If the stock dropped 50% it would require 100% to break even.

With the latter strategy, he buys a leap for half the price and writes calls. Thus he is able to reduce is cost basis sooner. If expiration comes and he decides he's not interested in QCOM, he could sell his leap for some extra profit.

I'm sure there are pros and cons for either strategy like being called on the shorter timed call, but for me, I prefer the leap.

To each his/her own,

Dominick
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