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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Terry Maynard who wrote (6501)	1/19/1998 10:08:00 AM
From: Greg Higgins	Read Replies (2) \| Respond to of 14162

Terry Maynard writes: Could you explain why the need for the LEAPS The LEAPS is a substitute for stock. If you have stock, you don't need the LEAPS. But when I buy a call, I usually try to buy as little time as possible. I try to sell as much time as possible. Now one nice thing about options is, you will never get a margin call on an option you own. Purchased options must be paid for in cash. You own them outright. The overriding advantage of LEAPS to stock is that you get the benefit of margin pricing without the risk of a margin call. By using a deep in the money LEAPS, you get the margin effect, you pay very little for your time, and you have a longer term with which to sell calls against the "stock". Now the obvious question is, "Do I need to go that deep in the money?" I'm glad you asked. I like to buy the deepest in the money call I can afford. You cannot sell a 35 call against a 40 call. It's not covered. With stocks dropping like flies these days, I want to know that I've given myself the most opportunities to write calls against my stock substitute. Now some people take a buy-write position with the intention of being assigned right away. They neither have the time nor the desire to spend the day watching the market. Herm's sneaky pete strategy is perfect for them. I am not convinced, nor am I suggesting, that LEAPS make for a good long position in this trading style. I trade my writes. To do this, I need to protect my long positions as if they were stock I've held for 20 years. Because I intend to protect my long positions, LEAPS are a good choice for me.