He said "virtually" no time decay. If you look at a chart of time decay for a year, it will be nearly flat at the beginning then fall off sharply as it gets close to expiration.
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LEAP trading
- Thread starter delta1
- Start date
He said "virtually" no time decay. If you look at a chart of time decay for a year, it will be nearly flat at the beginning then fall off sharply as it gets close to expiration.
the idea behind leaps is paying no or little premium. for instance i had 200 cat 2007 and 2008 90 and 100 puts i scaled into over a 6 week period when it was skying. i was paying 50 cents to $1 premium as i was $20 or more in the money. this is far cheaper than shorting the stock outright. cat crashed from $82 to $64 and i caught 6 figures overall on it. any option's i do are always in the money. out of the money is a suckers game and you'll lose over time. i also take premium on fat stocks like goog or shld after they've had huge moves i'll take premium on a counter ternd
Quote from Eliot Hosewater:
I actually got that from a book I'm reading called "Put Options". The author came to the conclusion after a few years of selling short term puts that the hefty premium on LEAPS offered a lot of room to move to the downside before losing money. He also buys OTM index puts for crash protection. Of course this was written in 2003 when the premiums seem to have been a lot higher - like $12 on OTM IBM puts for an annual yield of 12%. Today the same thing would pay about 7%.
What other facts do I have backwards?
The author likely suffers from head-trauma. Quickly, with one motion, throw that book into the trash and burn it until no further damage can be inflicted.
LEAPS are ALL vega and delta, zero gamma/theta. You realize that you're making a volatility bet? Most equity vols are in the bottom 2 deciles.
Maybe I should start a new thread, but I thought I'd try here first. This has probably also been covered somewhere on this site, but I haven't found it yet.
Are premiums from selling LEAPS long term capital gains if the position is held open for at least a year? I have several books, including one with McMillan, that say yes. But IRS publication 550 says no, unless they are exercised after 1 year. Or, I think it says, if you sell a covered call and you have held the underlying stock for at least a year, and then it is exercised.
Are premiums from selling LEAPS long term capital gains if the position is held open for at least a year? I have several books, including one with McMillan, that say yes. But IRS publication 550 says no, unless they are exercised after 1 year. Or, I think it says, if you sell a covered call and you have held the underlying stock for at least a year, and then it is exercised.
amateur wrote: "Selling deep in the money leaps is often a better alternative to selling short the underlying equity."
What type of deep itm leaps are you selling? I assume they must be calls since you are comparing them to "selling short the underlying equity". It's my understanding that a deep itm call has very little extrinsic value and is thus at risk of early exercise, even a LEAP. However, as long as there is significant extrinsic value then early exercise shouldn't be an issue.
daddy's boy
What type of deep itm leaps are you selling? I assume they must be calls since you are comparing them to "selling short the underlying equity". It's my understanding that a deep itm call has very little extrinsic value and is thus at risk of early exercise, even a LEAP. However, as long as there is significant extrinsic value then early exercise shouldn't be an issue.
daddy's boy
Pub 550 should be the bible and I think it says "no" LT cap gains for short options.Quote from Eliot Hosewater:
Maybe I should start a new thread, but I thought I'd try here first. This has probably also been covered somewhere on this site, but I haven't found it yet.
Are premiums from selling LEAPS long term capital gains if the position is held open for at least a year? I have several books, including one with McMillan, that say yes. But IRS publication 550 says no, unless they are exercised after 1 year. Or, I think it says, if you sell a covered call and you have held the underlying stock for at least a year, and then it is exercised.
However, if the stock is assigned and held for a year then LT cap gains applies. Because the gain is calculated including the proceeds of the option then, in effect, the option proceeds get LT cap gains treatment.
Anyway, that's my understanding. If anybody knows different please correct me.
Don
Boy, right , I mean calls
I am selling Level 3 strike 2,50 calls, in Jan 2008 for example you get 2,30+2,5==4,80, 40 cents above the underlying.
Jan 07 VVKAZ.X 2.05 0.00 2.05 2.10 3,057 49,321
Jan 08 LVAAZ.X 2.30 0.00 2.25 2.30 84 12,121
Caution: Of course it has all the same unlimited loss potential of a short equity sale.
I am selling Level 3 strike 2,50 calls, in Jan 2008 for example you get 2,30+2,5==4,80, 40 cents above the underlying.
Jan 07 VVKAZ.X 2.05 0.00 2.05 2.10 3,057 49,321
Jan 08 LVAAZ.X 2.30 0.00 2.25 2.30 84 12,121
Caution: Of course it has all the same unlimited loss potential of a short equity sale.