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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: David Wright who wrote (10899)	5/26/1999 6:51:00 PM
From: NateC	Read Replies (1) \| Respond to of 14162

David....you wrote A LEAP is not viewed by the broker as security against which to loan you more money on margin. This impacts your equity position, and reduces your overall buying power. Dreyfus will loan you money against the value of the stock up to 1/2 the CC strike price. It will not loan you money against a LEAP, because it is an option. You can borrow the money against your securities to buy the LEAP, as Jon pointed out, but once you buy the LEAP, it sits there (assuming the stock price stays the same) as a steadily-declining-in-value lump, until it expires, or you sell it. From a margin account perspective, I might as well buy the stock. At least, when it's underlying value goes up, it doesn't have the "greeks" holding its actual selling price down like with the LEAP. I sort of agree with you......but not entirely..... you could, for example....if you wanted for some reason to CC SCHWAB...which is currently at about 108....you could buy the stock on margin.....100 shares would cost you $108,000 .or $54,000 on margin... OR....you could buy the Jan 2001 100 strike price LEAPS calls for $42. 10 contracts....the same as the comparison above...would cost you $42,000....and this would be a non-margin cash situation...but it would allow you to CC the stock...for less cash invested.....$42K vs $54K......both of which would be ways to be "long" the stock...in order to CC it