Thanks, smallfil. I might consider this!
LEAPS option - Is this a good use?
- Thread starter macanoni
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Thanks Option_Attack. This is something new that I haven’t thought about. I’ll give it some thoughts. It’s a lot more complicated though. BTW, the stocks are in a tax-deferred account, so I don’t mind trading them.IMHO it's ok (selling LEAPS calls against 1/2 your position) from an investing standpoint. IOW you were just going to keep the stock, or let it go at the short call's strike price. In most market conditions continued trading of the so-called Wheel (sell puts, when assigned sell calls, etc) in a short term way is nearly guaranteed to under perform most other methods. Doing it your way will at least add some gains if stock goes up and slightly lessen losses if stock drops. If you trade in and out of it a lot you will probably lose.
BUT don't forget you will pay cap gains on those shares if the calls are assigned. If you REALLY love this stock and you wouldn't mind buying more, then another game you could play is to sell LEAPS puts OTM at the same time as the calls. If the stock goes up you keep short put prem and short call prem, but possibly get the shares called . Stock goes down you keep both prems again, but possibly buy another 500 shares at the put strike. The prems can offset some losses, but of course the danger here is you are possibly doubling up on your position. It's easy to say "But I wouldn't mind buying more if it dropped to the put strike..." but would you REALLY still want to if the stock turns into a disaster? What if it drops 50% under the put strikes?
Anyway, adding LEAPS calls/puts prem with a LONGER TERM mindset could add a couple percentage points profit potential. There are of course lots of gotchas and things to think about. Good luck.
Assignment is something that you never know. I’d say almost 100%. Someone long on the put is willing to take profit earlier.
That's the big disadvantage of American style options for option sellers.
European style options can be exercised/assigned only on the last day (ie. at expiration),
therefore the option seller can sleep better than with American style options.
Just buy it back. Traders don't think in terms of not willing to part. You can sell and buy back multiple times a day, so traders think more in terms of being in and out of positions.
Typical CC time frame is 6 weeks out, so anywhere from 1-2 months. Also, fairly typical to sell at ONE Standard Deviation. Most option trading platforms will mark the SD's in the option chains.
fyi - a short put at the same strike and expiry is equivalent to a CC, so you might look at that. Compare premiums and see if Puts or Calls are higher - sometimes one is higher due to upcoming Dividends or some expected corporate action or announcement. Then you can sell the stock, sell the short put (it would be ITM, obviously) and just get assigned. This is also a useful strat if you called away on an underlying you like. Just sell medium term ITM puts and collect some premium waiting to get assigned.
Depends on the premium. If there is premium in the bid, absolutely not. Why would anyone exercise when they can sell for greater Profit? If there is not premium, but the next strike up has premium, probably not assigned for a while, though possible.
If you're deep ITM, with no premium for many strikes up - YES, almost definitely you will be assigned.
Also, look at Open Interest. If high, you are less likely to be assigned as assignment is random. If there is low OI, you are more likely, obviously.
HOW COME YOU GET A PASS ON THIS, WITH EVERYONE HOLDING HANDS, SINGING KUMBAYA?? I share the same concepts and get ripped to shreds on these forums?
Yes, I think it's a great strategy...I have used it for 20 years (among other strategies). You have though out the pros and cons on this. If you feel comfortable, run with it...
Day traders vs long term investors see things differently...Not bad, just different.
PS The one thing you are not seeing is the solid value companies price could drop in half, or go to zero!! You may want to look at the chart of GE for as far out as you can. Three times it has lost 50% of it's value in less than two years. GM went bankrupt (both I have owned using leaps). Here is another dog I am still dealing with (yes, I am willing to share my dogs). TEVA...They are the largest generic drug maker in the world!! They were a value company...What could possibly go wrong?? A little thing called opioid litigation came along and almost wiped it out.
Just saying, be careful with those 500 share that are optioned. Buy them back if the stock is heading south and maybe get rid of the stock...
Also the option could drop so low you will be unable to buy your option back. Be careful there is a market to do that. If there is no price, you may be stuck till expiration. Yeah, I know use the other 500 or be uncovered or some type of exotic trades. I don't think he/she wants to do this...
Yes, I think it's a great strategy...I have used it for 20 years (among other strategies). You have though out the pros and cons on this. If you feel comfortable, run with it...
Day traders vs long term investors see things differently...Not bad, just different.
PS The one thing you are not seeing is the solid value companies price could drop in half, or go to zero!! You may want to look at the chart of GE for as far out as you can. Three times it has lost 50% of it's value in less than two years. GM went bankrupt (both I have owned using leaps). Here is another dog I am still dealing with (yes, I am willing to share my dogs). TEVA...They are the largest generic drug maker in the world!! They were a value company...What could possibly go wrong?? A little thing called opioid litigation came along and almost wiped it out.
Just saying, be careful with those 500 share that are optioned. Buy them back if the stock is heading south and maybe get rid of the stock...
Also the option could drop so low you will be unable to buy your option back. Be careful there is a market to do that. If there is no price, you may be stuck till expiration. Yeah, I know use the other 500 or be uncovered or some type of exotic trades. I don't think he/she wants to do this...
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Lol cabin, maybe it's just a hazing ritual? :-(
Next to zero..why would anyone exercise 12 month early and be short the imbedded call??(ignoring rate play ) ..if assigned,you now have upside above the strike...
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