How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: NateC who wrote (10223)	4/4/1999 3:21:00 PM
From: Greg Higgins	Read Replies (1) of 14162

Perhaps, but I disagree with his statement regarding DITM LEAPS. I use only DITM LEAPS. True it reduces the ROI, but ROI isn't everything. There's also security. The question to my mind becomes how much time you have to pay for. I prefer to buy as little time as possible and sell as much time as possible. With a stock at $60, and a 2001 35 Leap selling for $29, you pay $4 for time. Assuming you can get at least $1/ month, you've paid the investment in only 4 months. Since you usually get more than $1 per month, it's paid off pretty quick. If you're at the money, you might be paying 15-50 for the same time. At the higher prices, the volatility will give you higher short term premiums, but may also reduce your profits if the stock rises or falls precipitiously. Diagonal spreads using Leaps for the Long side is riskier than straight covered calls. The more shallow the Long side, the riskier they become. With risk comes reward and/or losses.

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