Covered Call Newbie Question

Hey option guys, Torontoman's collar consists of a

long SPY stock

Long SPY March 96 put

Short SPY Nov 110 call

Why wouldn't he just close the stock and put position and buy a leap? Free up some cash.
 
Quote from CanadianBoy:

Torontoman's collar consists of a

long SPY stock

Long SPY March 96 put

Short SPY Nov 110 call

Why wouldn't he just close the stock and put position and buy a leap? Free up some cash.
More...
It's a great idea if the SPY goes up a lot.
It s*cks if it craters.
 
Quote from CanadianBoy:

Hey option guys, Torontoman's collar consists of a

long SPY stock

Long SPY March 96 put

Short SPY Nov 110 call

Why wouldn't he just close the stock and put position and buy a leap? Free up some cash.
More...

Because if spy goes sideways or lower you will lose everything. If you buy a deep in the money leap to thwart this problem, then you aren't really freeing up much cash, you've got theta working against you, volatility could go lower further reducing leap value, and if spy goes down hard you will lose everything.
 
Even if it's a deep in the money leap? I'm sorry. I don't understand why buying a deep in the money leap is harmful to his position instead of long spy and long march 96 puts. To me it's the same.
 
Quote from CanadianBoy:

Even if it's a deep in the money leap? I'm sorry. I don't understand why buying a deep in the money leap is harmful to his position instead of long spy and long march 96 puts. To me it's the same.
More...

For example the March 96 call is cheaper.
 
Quote from CanadianBoy:

Torontoman's collar consists of a

long SPY stock

Long SPY March 96 put

Short SPY Nov 110 call

Why wouldn't he just close the stock and put position and buy a leap? Free up some cash.
More...
This chain got a bit jumbled.

Substituting a call LEAP for the stock and the put would free up cash but it would not be an equivalent position. To do that, it would have to be a Mar 96 call.
 
Quote from spindr0:

This chain got a bit jumbled.

Substituting a call LEAP for the stock and the put would free up cash but it would not be an equivalent position. To do that, it would have to be a Mar 96 call.
More...

Yes. You are right!
 
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