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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: VincentTH who wrote (7388)5/4/1998 11:27:00 AM
From: Herm  Read Replies (2) of 14162
 
Thanks for the response Vincent,

I just got off the phone with my online broker DLJ Direct (PCFN old name) and confirmed that indeed I could buy LEAPs and CC against the LEAPs. What really blew me away when I asked about the margin or cash necessary. He indicated that the LEAPs are cash purchases like regular options. If I wrote a CCs against the LEAPs and eventually got called out that the exercised CCs would automatically trigger the exercise of the LEAPs and the CCs would be honored on time without my input. Also, that I would not have to have all the money for the actual intrinsic value of the LEAPs. In other words, the CCs are backed up by the LEAPs minus the commissions for the transactions.

Wow! That is a heck of a advantage to straight stock ownership if no dividend is paid by the company anyway. Provided your net cost basis (NUT) for the LEAPs is below the CC strike price you are making exceptional rate of return with minimal risk if you use our rolling up and down CCing tools as discussed on this forum.

So, Vincent! Have you ever been actually called out of LEAPs/CC spread? Could you share what happened and was your spread profitable anyway? Seems to me if your LEAPs are at $10 strike and the CCs at a $20 strike you are able to stay ahead of the game!

Thanks!
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