CC w/ leap surrogate, what happens at assignment

Discussion in 'Options' started by serrow, Aug 26, 2007.

  1. This is because they don't maintain the same notional exposure. CCs and Naked puts are the same except that naked puts require 1/3 of the margin in a reg-T account, and even less in a PM account. If someone could leverage 6:1 on a CC think how fast they could blow up an account.

    That is what people are doing. An equivalent 16% dd wipes them out. If you are going to sell naked puts, you need to maintain the risk. If you'd have only bought 1000 shares to sell calls against, then you should only sell 10 puts. End of story.
     
    #11     Aug 28, 2007
  2. kny3

    kny3

    Understanding LEAPS
    Marc Allaire & Marty Kearney
    2003, McGraw Hill

    On Amazon 35% to 40% off list.


    I like writing s.t. calls against long LEAPS calls. Worst case scenario (other than stock tanking) is being assigned the short call. You own the LEAPS call so you're covered. If you're still l.t.bullish, buy back the short stock and sell another otm call.

    This can be commission intensive.

    kny 3
    :cool:
     
    #12     Aug 28, 2007
  3. nravo

    nravo

    What about the sucky spreads on Leaps, especially when you eventually close out the Leap. And when is the best time to sell the Leap -- when the time decay curve starts to steepen about 3-9 months out?
     
    #13     Aug 28, 2007
  4. kny3

    kny3

    Hi. You're adding another layer to this cake. I'm not saying day trade LEAPS. VLO has a $0.30 wide vig on the $18 Jan '09 55 calls. IBM has (could be cause markets closed) sucky bid/asks on '09's, as does GOOG. I think you could hold long LEAPS for a year and equal as much time decay as last 4 1/2 months. Keep in mind deep itm options (and far otm) more linear on time decay than atm.

    kny 3 :cool:
     
    #14     Aug 28, 2007
  5. spindr0

    spindr0

    The best time to sell is when the LEAP has the most profit :>)
     
    #15     Aug 29, 2007