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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: margin_man who wrote (575)	1/21/1998 10:52:00 PM
From: ----------	Read Replies (2) \| Respond to of 2241

Hi Patriot: Of course you would have to give up your leaps (e.g. exercise so you can deliver what you have obligated yourself to deliver). Your only other choice would be to go buy the stock & deliver it. But, most likely that would cost more money & be the poorer of the two choices. I know you were not critizing the example, but it in all fairness to the gentleman, it was just a hypothetical example. Your question is also very good. IF you would be assigned an exercise the very first time your wrote a call against your leap, you would have a loss.... probably a rather ugly loss. That is the downside. In exchange for taking that risk, you only have to put up the money to buy the leap, rather than the stock. And, if you use margin, you would not be subject to margin calls on a leap as you would on a stock, as options are not marginable. While it's a little off the track, I prefer to buy the stock & sell a short term call, when the numbers work out. For example: (JUST AN example!) buy 100 dell @ 94 Sell dell Feb 95 Call at $5. If stock is called, I make $6 in 31days on $94 investment. That is an annual rate of just over 70%. If Dell is not called my cost basis is 94-5 = $89. After the February's expire, I can sell another call. The downside to this approach is I have more money tied up, and have more potential loss because I own the stock instead of the leap. (Of course I wouldn't do it with a company I thought might go broke. <g>) Either way, you give up something to get something. Hope this helps. I apologize if I butted in. Doug

To: margin_man who wrote (575)	1/21/1998 11:05:00 PM
From: Schiz	Read Replies (2) \| Respond to of 2241

What if the sold c/calls get called then what are you going to do? Give up your LEAPS? Couldn't you buy back the calls (don't wait for them to expire, someone is not goint to excercise them if there's still time value in them) and sell more near term calls and still keep the leaps? The premium on the next expiring calls should at least offset the transaction costs. I actually have limited experience in options and would appreciate any feedback as to whether that makes any sense or not.