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 (10894)	5/23/1999 4:04:00 PM
From: David Wright	Read Replies (1) of 14162

Roger, You wrote: "So LEAPS allow you to basically own the stock, CC it....and they may cost less than half the stock price...so they're cheaper than buying the stock on margin." I disagree with this for a margin account. A LEAP is not viewed by the broker as security against which to loan you more money on margin. This impacts your equity position, and reduces your overall buying power. Dreyfus will loan you money against the value of the stock up to 1/2 the CC strike price. It will not loan you money against a LEAP, because it is an option. You can borrow the money against your securities to buy the LEAP, as Jon pointed out, but once you buy the LEAP, it sits there (assuming the stock price stays the same) as a steadily-declining-in-value lump, until it expires, or you sell it. From a margin account perspective, I might as well buy the stock. At least, when it's underlying value goes up, it doesn't have the "greeks" holding its actual selling price down like with the LEAP.

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