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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: rydad who wrote (3279)1/17/2002 5:50:43 PM
From: Dan Duchardt   of 5205
 
rydad,

I assume that exercising the LEAP means selling it back.

No, it is not the same thing. Exercising the LEAPS calls, as with any other call options, means instructing your broker to initiate a purchase of the shares controlled by the LEAPS at the strike price. As you have figured out, that is a bad deal for you. Selling the LEAPS and buying stock to replace the shares you had called away is almost always a better choice. With a proper combination of LEAPS and near-term strikes, you can assure that you will be able to close out the positions with some gain if you are at risk of being called out. If you wait to be called out and the stock takes a dive, or if the stock pulls back while you hold the positions you could lose.

Dan
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