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Strategies & Market Trends : Advanced Option Strategies

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To: Herm who wrote (32)	7/13/1998 9:20:00 PM
From: Joe Waynick	Read Replies (1) of 355

Herm, thanks for your response. However, let me clarify . . . I understand your logic. You buy a $30 LEAP for $10. You write a short term (30-day) CALL at $35 or $40 and collect say a $1.50 premium. That would be a return of 15% monthly return if the short term CALL expires worthless. If not, your broker assigns the CALL you sold and exercises the LEAP you purchased. Of course, since the stock went up to say $35, the LEAP is worth more than $10 and you profit the premium as well as the appreciation on the stock. If the strike price is reached prior to expiration, there's really not need to wait. Just close the position and start again. You are in fact covering your short call with your long call LEAP. See, I come around eventually! You might also mention that McMillan considers this a potentially profitable, but certainly high risk strategy!

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