Thanks to the Highest Volatility, is this a good time to Sell Covered Leaps ?

Discussion in 'Options' started by darwin666, Oct 16, 2008.

  1. Since the VIX is nerve wracking, lots of folks are watching the roller coaster from the sidelines.
    I am thinking to get in with some Covered Leaps on SOLID stocks which I would like to own in the long run

    for example
    JAN 2010 is 456 days away. ie. 1.3 years.

    selling BP 40 Jan 2010 covered call is giving me

    Strike/ Symbol / Bid / Ask Net Price /Premium /Premium % of Strike / Return Assigned
    40.00 / .WAOAH/ 8.10/ 8.90/ 34.42 / 5.58 / 13.95% / 16.21%

    16% for 15 months. ie. 12% APY. plus BP gives 8% dividend.

    Can anyone comment on this strategy. get in and hold it .if it tanks. atleast we get protected signficantly on the downside

    for some of the more volatile, the rewards and downside protection is much more

    MOS 25 strike covered call. protection till 18.

    Strike / Symbol / Bid /Ask / Net Price/ Premium /Premium % of Strike / Return Assigned
    25.00 / .LXWAE / 17.40/ 18.40/ 18.27 / 6.73 / 26.92% / 36.84%

    I am thinking to do this for SOLID dividend paying stocks. hence the Deep ITM covered calls.

    If there is no dividend , we can do the same by selling out of the money naked or cash secured puts.

    any comments. and suggestions to this strategy.
  2. I'm interested in this thread. Extremely. I'm doing something similar. Could you edit your post though. Some of your cut and paste prices are laid out a bit confusing. :confused:
  3. I did edit it . with / between the columns.. could not format it better

    BTW, I propose to do this strategy with 30% of my STOCK portfolio..

    we really dont know where the bottom is. hence atleast this allows us to be in the game.

    the best thing of this strategy is

    the stock price can remain the same. rise or even fall 10-20% and we dont loose.

    plus , if the stock moves up a lot, we can get out and buy back the call and free up our money for other Opptys. but we wont get the entire premium. but major part of it.
  4. 1) As you know, writing covered calls is a bullish strategy.

    2) In general writing LEAPS is not a popular strategy because time decay is less than with shorter-term options.

    3) If you are ever going to write LEAPS, periods of elevated volatility are the best time. I'm sure you understand that the markets may move much lower and your downside protection looks good now, but it may be insufficient to prevent losses.

    4) But, if you WANT to accumulate stocks and if you want to be bullish, this is a very good approach.

    5) If considering naked puts (cash-secured is safer) the additional premium should compensate for missing the dividends. And it also saves you the cost of carrying a long stock position. Do the math before assuming CCW is better than NP.

    Again, for the investor who would like to buy quality stocks, this is a good method. But it's far from foolproof.

  5. MTE


    There's no point in selling a call more than a year out, as it has been pointed out, time decay is non-existent, so for very little reward you assume all the risk. If you wanna accumulate stock then look at writing shorter term put options, and I wouldn't go out further than 45-60 days.
  6. yes. Thanks for the advice..

    covered calls is a bullish strategy. but the way I intend to do it. deep ITM. i am making it a neutral to bullish.

    Yes, a big drop in the stock will not save me, and that is also true from holding RAW stock without a call. hence I am willing to give up the upside gain for partial downside protection.

    In the end of the day. we all become BAG HOLDERS. thats what shorts call us. ha ha.

    Its the dividend stocks which I am eyeing this time, as I want to get dividend and also play it as far I dont get intimidated with the short term volatility.

    It goes without saying. longer the time frame, greater the protection .
  7. 1) Give thought to only selling shorter-dated, at-the-money options in order to maximize the option premium you expect to collect.
    2) Don't get distracted by selling covered calls that are in-the-money or farther-out-of-the-money. If you have an opinion about the stock, you should trade the stock accordingly.
  8. This poster is NOT interested in what yiu think is the best approach to writing covered calls. He wants DITM, he wants dividends, he wants as much safety as he can get - without owning a collar.

    And he apparently wants to get short LOTS of vega. LEAPS don't suit you (or me), but it should work just fine for his needs. ATM short-term sells very little vega.

  9. 1) The way I read the initial thread......he's writing (OTM) out-of-the-money covered calls.
    2) I found your thread to be logical, concise and descriptive.
    3) I flunked Mind Reading-101 in school.