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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: Jon Tara who wrote (10897)	5/26/1999 12:25:00 AM
From: NateC	Respond to of 14162

Jon wrote If you own a LEAP, will most (all?) brokers consider a sale of a shorter-expiration call to be "covered"? Or is it technically a spread transaction, and you are just using the term "covered" here for convenience? Is this true ONLY with LEAPS, or would any sale of a shorter-expiration call against ownership of a longer-expiration call be considered covered? But - wait - how would this ever be considered covered? Sure, you have the right to acquire to stock, because you hold the LEAP. But you would have to put up additional money to acquire the stock. So you are NOT truely covered. This HAS to be a spread transaction, which will have a margin requirement, plus will require an account approved for spread transaction. Right? never too basic a question....many of us cut our teeth on this thread, and Herm's teaching. you're right...it is basically a spread....and they don't technically consider it a covered situation. However you can play it like a covered call....and I have done that with Ameritrade, They have even clarified for me what would happen if a CC (with the "underlying")actually a spread situation with a long LEAPS call. The CC would be assigned. They would call you Monday morning....and ask you how you'd love to cover the assignment....whether to sell the long call, or something else. Since the stock had advanced (assumes you sold an OTM CC, I guess) and I believe yes it does require an account that allows spreads....mine with Ameritrade does