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

To: Gary E who wrote (3294)	1/20/2002 7:05:31 PM
From: Dan Duchardt	Read Replies (2) \| Respond to of 5205

Hal, The issue is that if you don't have, or cannot raise the cash from within the account, how are you going to buy the stock to deliver for the assignment on the short calls? Assuming the "same day" thing is not a problem, the long LEAPS is only a contract that gives you the right to buy stock at a specific price; it is not ownership of that stock. So you are covered only in the sense that the net cost of the deal is taken care of. To meet the assignment you have to buy the stock, either outright or by exercising your LEAPS. In an ordinary cash account your broker could buy the stock and tell you to pay for it within the settlement period, as long as he believes you can make good. But he cannot use the proceeds of the sale to make the purchase because that would be "free-riding". You could send the money to make good on the purchase, and then have the broker send back the money after the deal is done. However, the IRA has a special problem because you are not permitted to make unlimited contributions. If you suddenly need $10K to cover a purchase, you cannot contribute that to the IRA unless (and I'm really groping here) there is a loophole in the IRS handling of excess contributions (I know there is some provision for this) that permits you to over contribute as long as you take the excess contribution back out. Dan