I'm curious to see what David, and others,have to say about a scenario..where you want to go in and do some CC's on a stock, XYZ, you like..at, say......$50.
You want to buy 1000 shares....so you'd spend $50,000 to go long...and then you'd sell the $55 2 month out CC...at...say $2.50. OK...you spent $50,000...and you're going to collect $2,500 in premie........and if you don't get called out....you just made 5% in 2 months, or 2.5%/month, and if called out, you do better.
BUT....in this theoretical stock, XYZ....if you bought the
$40 Jan 2001 LEAPS Calls..at......say, $20........and everything else was the same...you would spend $20,000 for the LEAPS calls......and collect the same $2,500 premium for writing the $55 CC's....so if not exercised....you'd be making instead of 5% (2,500/50,000)............12.5%(2,500/20,000) in 2 months, or 6.25%/month.
So David W......you're one who's not sold on the LEAPS as stock surrogate concept yet......yet you like Fat ROI (I know that)......why don't you like the LEAPS vertical spread scenario for CC's better than just buying the stock long?? |
