Let’s say I go long the warrants and sell ATM LEAPS. Any better potential ROI than simply selling coveted calls with stocks? How about the latter trade with portfolio margin, which doesn’t apply to warrants or LEAPS at any broker I know of; if I’m wrong and it matters for this comparison let me know. Thanks in advance for any insights.
OXY Trade. Your thoughts.
- Thread starter dcwriter2
- Start date
I personally don't like the idea of selling short-term calls against LEAPS. But, I've honestly never tried to buy a warrant and then sell a LEAP. So, I can't say if the idea has merit or not. If you have some specifics, that would help.
Ignoring the math, here's some things I'd question, if I were considering doing that trade:
1- Vega exposure.
2- Warrants are not as standardized as options, so you'd need to know the specifics of that warrant.
3- Is it American or European style for assignment purposes.
4- Is it even available, and if so, how liquid is it.
5- How assignment is handled for warrants, and is a short LEAP call considered covered by a warrant, meaning will the broker see it as a diagonal spread or as a naked call and an unrelated warrant.
Like I say, I don't know anything about trading warrants, but these are things I'd ask. Hopefully, there is someone more knowledgeable on the forum who could chime in. I'd be interested to hear what others think.
Without specific numbers it's hard to say if this would work out better than just doing covered calls. As far as margining covered calls, I prefer to do covered calls and use diagonals for leverage in order to limit risk.
Ignoring the math, here's some things I'd question, if I were considering doing that trade:
1- Vega exposure.
2- Warrants are not as standardized as options, so you'd need to know the specifics of that warrant.
3- Is it American or European style for assignment purposes.
4- Is it even available, and if so, how liquid is it.
5- How assignment is handled for warrants, and is a short LEAP call considered covered by a warrant, meaning will the broker see it as a diagonal spread or as a naked call and an unrelated warrant.
Like I say, I don't know anything about trading warrants, but these are things I'd ask. Hopefully, there is someone more knowledgeable on the forum who could chime in. I'd be interested to hear what others think.
Without specific numbers it's hard to say if this would work out better than just doing covered calls. As far as margining covered calls, I prefer to do covered calls and use diagonals for leverage in order to limit risk.
Shares are $25 and the warrants are approaching $11 struck at $22 out to 2027. The warrants are a 70D and priced well (vs margin rates on a mil of 4% to carry the shares). Makes sense to write against the warrants but I can't imagine you'll receive a reduction in haircut against the warrant at retail.