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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: Dominick who wrote (3271)	1/17/2002 12:07:37 PM
From: rydad	Respond to of 5205

Thanks Dominick, Its getting a little clearer. Where can I find out what the delta is between each stock and its leap? Do you know if it is available on Yahoo or Nasdaq.com? This strategy seems promising, why don't more people do this or at least talk about it? Thanks again.

To: Dominick who wrote (3271)	1/17/2002 12:32:12 PM
From: Uncle Frank	Read Replies (2) \| Respond to of 5205

>> I think the delta for Dale's leap is around .80. Meaning for every point QCOM drops the leap should fall only 80 cents. But since the LEAPS cost a fraction of the price of the stock, an 80 cent drop is a much larger percentage loss. In the case of a $46 stock and a DITM LEAPS that costs 22, A stock drop of 1.00 represents a 1/46=2.2% loss. A LEAPS drop of .80 represents a .8/22=3.6% loss. I note as well that the chances of a good company, such as one of our Gorilla and Kings, dropping to zero are very small, while the chances of a LEAPS expiring worthless are quite real, as I know from personal experience :-(. Though it is one of the more conservative options plays, I view the risk level associated with calendar spreads as significantly higher than covered calls. jmho, duf

To: Dominick who wrote (3271)	1/17/2002 12:36:33 PM
From: rydad	Read Replies (1) \| Respond to of 5205

Dominick, I was looking at some random numbers and was wondering if you could help me analyze this random case: If one bought a Juniper LEAP Jan (2003) 17.5 for $6.00 then wrote a call for Feb (2002) 17.5 for $1.60 First off, I would collect $1.60 from the call premiums. If Juniper closed at or above $17.5 at Feb expiration, then my Leap would be sold for $ X. If Juniper closed below $17.5 at Feb expiration, then I keep my Leap. With time the Leap will lose value due to the time component of the option deteriorating. (right?) Since the Leap only cost me $6 if I continue to be able to write monthly (ATM) calls for about $1.50 my cost basis would be $0 in about 4 months. (right?) I realize that this strategy is much like the basic CC strategy with stocks but I was a little confused since one is dealing with the value of the Leap rather than the actual price of the stock itself. Now, basically if the cost basis of the Leap becomes $0 in about 4 months then the remaining 8 months until the Jan 03 leap expires would be pure profit. Is this also correct? As you can tell, my thoughts are a little jumbled. Its difficult to put all of one's thoughts down on "paper". Thank you again for helping to clarify this strategy for me and other novices on this thread.