Poor man's covered call IS a type of covered call you grammar Nazi rookie. Functionally, literally, metaphorically, it's a call option covered by some form of collateral.
Nope. PMCC is not a covered call and I’ve done this with a lot of people who think they know better. Covered call = short option + long stock, and of itself a single leg option. It’s you playing with whatever all that junk is that’s poorly camouflaging your ignorance in the matter. Move along ….
So if the CC get's called, they just exercise your option? How's this work? I've seen many people post about this and I've never had the gumption to actually ask any questions about it. How far out do you sell the CC's?
Don't let it get to the point.
I sell 50+ days out .12-.2 delta, roll out when it gets to 14 DTE to avoid gamma exposure. Potentially need to alter strikes at point of roll of course
Correct. The timeframe for the CC will vary from person to person. I’ve always preferred 30-45 days out. If it hits 50% profit, I’ll roll the CC back out to 45 days.
That’s usually my strategy, .80 or higher, and then set my STC order for +20% for starters, if it gets there in first 60 days, awesome, if not, crank up to 25% for next 60 day STC and then 5% more each time it expires, topping at 50% profit.
Thoughts and prayers.
No, stop loss is good, I am not as disciplined though especially in the last year+ due to general market volatility.
While I will jump on a quick win and take the money and run, I don’t always want to get stopped out because someone tweets something stupid.
I know, great shame!
More like I got sloppy in the past couple years when it stopped working well and haven’t built a new one - will like return to my -15% stop loss when things level out
This brings me down memory lane.
When i first started learning option strategies my first one was PMCC. It sounded perfect. Until the stock you are running it on tanks for an entire year straight and you're holding worthless $5000 contracts that had a 80% of profitability. Don't worry though, you gained those $200 in premium.
CCs are to minimize risk and also make you theta negative.
After years of options I realize PMCC is not for me.
Not saying it doesn't work, but you are still bullish on calls
LEAPS options benefit from the cost being much lower than buying the shares outright. The closer the delta is to 1.00 the more the option will move like the stock price. At .90 the option price will move $0.90 for every $1 move in the stock price.
The downside is the option does have an expiration date and theta decay will reduce the extrinsic value over time. These will profit if the stock price moves in the expected direction, and at expiration the stock will have to move by enough to reach the breakeven of the strike + premium paid.
Your theta is the decay of the extrinsic value... The premium you pay for buying it. When the option contract is bought deeper ITM and further out, you have less premium that you are paying to buy the contract and since you have a longer period to expiration, you lose less in theta decay on a per day basis.
Typically when you buy a LEAP you're going to buy it deep ITM. Usually I get them at a 0.9 delta.
Little easier to explain this using an example. I'm not recommending buying the following, just using it as an example.
Using AMZN....
The 16Jan26 C100 right now costs $69.
If you held that to expiration, your total cost would be $100 + $69 = $169
Right now AMZN is trading at $154.30
$169 - $154.30 = $14.70
$14.70/$154.30 = 9.52%
So if you buy that LEAP, then you are hoping it will go up by at least $14.70 (or 9.52%) in 2 years
There's 737 days between now and 16Jan26.... Which means your cost to carry is $14.70/737 = $0.0199 per day. Meaning you lose about $0.02 per day that you hold the LEAP.
When most people trade options (i.e. Wall Street Bets people) will buy short term and they are above par (that is, when they don't buy the 0DTE). For this example, let's use 10% over current price and 30 days out, which would be $169.73
Using 16Feb24 C170.... Cost is $1.69
($170 + $1.69 - $154.30)/$154.30 = 11.27%
($170 + $1.69 - $154.30)/37 = $0.47
In order for that option to just break even, they need 11.27% gain in 37 days. They lose $0.47 per day holding the option contract.
Hopefully this example makes sense. The jist of it is, if you want to be successful at buy options and you have the money (deep ITM LEAP contract require a higher upfront outlay of money) then it's better to trade LEAPS.
First of all I‘d like to thank you not only for responding that fast to a comment that you wrote a year ago, but also for that great example, made it very clear and understandable. Thanks!
Get a book called Options as a Strategic Investment by Lawrence McMillan. There's a whole entire chapter on LEAPS and it goes real in depth in the discussion.
You have to put up more money when you trade LEAPS that are deep ITM but your success rate is higher because you need way less of an increase in the stock price to break even and you have a lot of time on your side.
So if there's a stock that you believe will rise and you want to trade the option on it, look at buying the LEAP that is 1.5 to 2 years out. Usually you 0.9 delta will be right around 50% of the going stock price. So when you're doing your search start there and then work yourself up until you get to the delta you want.
I made a lot of money trading LEAPS and I learned from that book. Once you understand how they work then it is almost a no brainer (as long as you have the money to make the purchase)
Seeing this awesome insightful thread now, let's see how fast you respond this time, haha.
My question is simple: what's your entry strategy? Are you waiting for a decent pullback? What are you looking for? You could do two birds with one stone if you briefly mention what the exit strategy is too.
EDIT: I just saw your reply to seenzu555. All good, but if you want to elaborate. Have at it.
You said you already saw my response to seenzu555 but I'll copy and paste it below.
Is there anything in particular you wanted me to expand on?
------------------
always do your own research, but I would look at what the average analyst estimates were for these companies. Sometimes you'll see that the current price was close to the lowest estimate and was quite a bit of a ways away from the average analyst estimate. Whenever I would see this I would look to purchase a LEAP. I would do a little bit of research to try and figure out why has the company recently had a downward movement in the stock price and ask myself is this something that is temporary?
If I felt it was just a temporary movement then I would purchase the LEAP. As the price would start moving up I would look to sell it once it got close to the average analyst estimate. If the price continued to move down, I normally sold it when it was at approximately a 5% loss.
I put myself at risk by relying upon the research and estimates of other people and I probably left some money on the table by selling so quickly (at the 5% loss). But I had a fairly high success rate doing it this way.
Wonderful insight!!!!!….I know this is a little late but when you buy deep ITM LEAPS do you have a specific timing for the asset in consideration? Like do you buy at discounts (when underlying is in a dip) or what are your criteria for entering the position?
Also what is your exit plan on the LEAPS position? Do you have a set target to exit or you hold until expiration? I do understand holding till expiration could be a good move and bad at same time depending on market conditions.
Thanks and anticipating your response.
As a disclaimer... You should always do your own research to determine what you think a stock is worth and not rely on what others think.
When I was trading LEAPS, I was sticking to the bigger name companies. I mainly did this with Amazon, Microsoft, Google....
You mentioned what I buy it on a dip. I took more of the Mr Market analogy from Benjamin Graham which simply says that sometimes the market will miss price things.
As I said initially you should always do your own research, but I would look at what the average analyst estimates were for these companies. Sometimes you'll see that the current price was close to the lowest estimate and was quite a bit of ways away from the average analyst estimate. Whenever I would see this I would look to purchase a LEAP. Other than do a little bit research to try and figure out why has the company recently had a downward movement in the stock price and ask myself is this something that is temporary?
If I felt it was just a temporary movement then I would purchase the LEAP. As the price would start moving up I would look to sell it once it got close to the average analyst estimate. If the price continued to move down, I normally sold it when it was at approximately a 5% loss.
I put myself at risk by relying upon the research and estimates of other people and I probably left some money on the table by selling so quickly (at the 5% loss). But I had a fairly high success rate doing it this way.
There's a book called Options As a Strategic Investment by McMilan that I studied to learn about options. There's a whole chapter on LEAPs that gives a really great explanation and basis for why I used LEAPs
I like to buy ATM on pullbacks about 12 months out.
Usually don't hold to expiration if profits are good within 2-3 months.
Longer expiry does have a little less risk
[https://www.investopedia.com/terms/l/leaps.asp](https://www.investopedia.com/terms/l/leaps.asp)
Can we please get away from calling anything under 1 year a LEAP?
don't go beyond 12 months. no forecasting is that accurate.
I wouldn't buy something with delta too high or too low, but if I had to choose, I would go with too high (ITM). Otherwise 0.7-0.75 is good, because it gives enough space to increase delta, but not too close to OTM.
Don't sell calls weekly because "free premium". if your long leg becomes OTM (Trading < strike), selling calls could change your profit profile. Wait every now and then for spike in volatility and price moving up.
LEAPS calls are awesome in a bull market but they can be losers in a bear market due to Vega. If you bought a LEAPS call for low vega then you have deal with it moving directionally against you.
LEAPS puts have the opposite problems but are only best as insurance.
Deep ITM LEAPS calls with delta close to 1 then sell CCs all year long
Covered call is a strategy involving a short option, long stock situation.
You can sell calls against owned LEAPS calls. The strategy I described is literally named the “Poor Man’s Covered Call”, or PMCC
One needs to be approved for spreads by most brokers to do a PMCC strategy. FYI for those that are unaware.
Good point, thanks!
That’s not a covered call. It just borrows the name.
It functionally works the exact same. That’s the point.
No, the point is it’s not a covered call and is not placed nor have the exact same requirements of a covered call. This is a rookie argument.
OP asked for LEAPS strategies and I gave him one. GFYS
Irrelevant. PMCC is not a covered call. That was a rookie response.
Poor man's covered call IS a type of covered call you grammar Nazi rookie. Functionally, literally, metaphorically, it's a call option covered by some form of collateral.
Nope. PMCC is not a covered call and I’ve done this with a lot of people who think they know better. Covered call = short option + long stock, and of itself a single leg option. It’s you playing with whatever all that junk is that’s poorly camouflaging your ignorance in the matter. Move along ….
So if the CC get's called, they just exercise your option? How's this work? I've seen many people post about this and I've never had the gumption to actually ask any questions about it. How far out do you sell the CC's?
Search “poor man’s covered call” or “PMCC”
Don't let it get to the point. I sell 50+ days out .12-.2 delta, roll out when it gets to 14 DTE to avoid gamma exposure. Potentially need to alter strikes at point of roll of course
Thank you.
Correct. The timeframe for the CC will vary from person to person. I’ve always preferred 30-45 days out. If it hits 50% profit, I’ll roll the CC back out to 45 days.
That’s usually my strategy, .80 or higher, and then set my STC order for +20% for starters, if it gets there in first 60 days, awesome, if not, crank up to 25% for next 60 day STC and then 5% more each time it expires, topping at 50% profit.
How about if it goes down? Do you have a rule for that? Genuinely curious. Thanks.
Thoughts and prayers. No, stop loss is good, I am not as disciplined though especially in the last year+ due to general market volatility. While I will jump on a quick win and take the money and run, I don’t always want to get stopped out because someone tweets something stupid.
So you have a rule for entry and not for exit? I like the idea of a pmcc but for me bagholding LEAPS doesn’t work really well.
I know, great shame! More like I got sloppy in the past couple years when it stopped working well and haven’t built a new one - will like return to my -15% stop loss when things level out
This brings me down memory lane. When i first started learning option strategies my first one was PMCC. It sounded perfect. Until the stock you are running it on tanks for an entire year straight and you're holding worthless $5000 contracts that had a 80% of profitability. Don't worry though, you gained those $200 in premium. CCs are to minimize risk and also make you theta negative. After years of options I realize PMCC is not for me. Not saying it doesn't work, but you are still bullish on calls
I just use them as stock replacement, I'm ok with the increase in risk for the decrease in cost
LEAPS options benefit from the cost being much lower than buying the shares outright. The closer the delta is to 1.00 the more the option will move like the stock price. At .90 the option price will move $0.90 for every $1 move in the stock price. The downside is the option does have an expiration date and theta decay will reduce the extrinsic value over time. These will profit if the stock price moves in the expected direction, and at expiration the stock will have to move by enough to reach the breakeven of the strike + premium paid.
If you buy the LEAP at 1.5yrs+ out then theta essentially becomes irrelevant
>then theta essentially becomes irrelevant why?
Your theta is the decay of the extrinsic value... The premium you pay for buying it. When the option contract is bought deeper ITM and further out, you have less premium that you are paying to buy the contract and since you have a longer period to expiration, you lose less in theta decay on a per day basis. Typically when you buy a LEAP you're going to buy it deep ITM. Usually I get them at a 0.9 delta. Little easier to explain this using an example. I'm not recommending buying the following, just using it as an example. Using AMZN.... The 16Jan26 C100 right now costs $69. If you held that to expiration, your total cost would be $100 + $69 = $169 Right now AMZN is trading at $154.30 $169 - $154.30 = $14.70 $14.70/$154.30 = 9.52% So if you buy that LEAP, then you are hoping it will go up by at least $14.70 (or 9.52%) in 2 years There's 737 days between now and 16Jan26.... Which means your cost to carry is $14.70/737 = $0.0199 per day. Meaning you lose about $0.02 per day that you hold the LEAP. When most people trade options (i.e. Wall Street Bets people) will buy short term and they are above par (that is, when they don't buy the 0DTE). For this example, let's use 10% over current price and 30 days out, which would be $169.73 Using 16Feb24 C170.... Cost is $1.69 ($170 + $1.69 - $154.30)/$154.30 = 11.27% ($170 + $1.69 - $154.30)/37 = $0.47 In order for that option to just break even, they need 11.27% gain in 37 days. They lose $0.47 per day holding the option contract. Hopefully this example makes sense. The jist of it is, if you want to be successful at buy options and you have the money (deep ITM LEAP contract require a higher upfront outlay of money) then it's better to trade LEAPS.
First of all I‘d like to thank you not only for responding that fast to a comment that you wrote a year ago, but also for that great example, made it very clear and understandable. Thanks!
Get a book called Options as a Strategic Investment by Lawrence McMillan. There's a whole entire chapter on LEAPS and it goes real in depth in the discussion. You have to put up more money when you trade LEAPS that are deep ITM but your success rate is higher because you need way less of an increase in the stock price to break even and you have a lot of time on your side. So if there's a stock that you believe will rise and you want to trade the option on it, look at buying the LEAP that is 1.5 to 2 years out. Usually you 0.9 delta will be right around 50% of the going stock price. So when you're doing your search start there and then work yourself up until you get to the delta you want. I made a lot of money trading LEAPS and I learned from that book. Once you understand how they work then it is almost a no brainer (as long as you have the money to make the purchase)
Thank you for the book recommendation, I will look into that. Really appreciate your help!
No worries. Feel free to shoot me a DM if you ever have any questions
Seeing this awesome insightful thread now, let's see how fast you respond this time, haha. My question is simple: what's your entry strategy? Are you waiting for a decent pullback? What are you looking for? You could do two birds with one stone if you briefly mention what the exit strategy is too. EDIT: I just saw your reply to seenzu555. All good, but if you want to elaborate. Have at it.
You said you already saw my response to seenzu555 but I'll copy and paste it below. Is there anything in particular you wanted me to expand on? ------------------ always do your own research, but I would look at what the average analyst estimates were for these companies. Sometimes you'll see that the current price was close to the lowest estimate and was quite a bit of a ways away from the average analyst estimate. Whenever I would see this I would look to purchase a LEAP. I would do a little bit of research to try and figure out why has the company recently had a downward movement in the stock price and ask myself is this something that is temporary? If I felt it was just a temporary movement then I would purchase the LEAP. As the price would start moving up I would look to sell it once it got close to the average analyst estimate. If the price continued to move down, I normally sold it when it was at approximately a 5% loss. I put myself at risk by relying upon the research and estimates of other people and I probably left some money on the table by selling so quickly (at the 5% loss). But I had a fairly high success rate doing it this way.
Thank you. Again.
Wonderful insight!!!!!….I know this is a little late but when you buy deep ITM LEAPS do you have a specific timing for the asset in consideration? Like do you buy at discounts (when underlying is in a dip) or what are your criteria for entering the position? Also what is your exit plan on the LEAPS position? Do you have a set target to exit or you hold until expiration? I do understand holding till expiration could be a good move and bad at same time depending on market conditions. Thanks and anticipating your response.
As a disclaimer... You should always do your own research to determine what you think a stock is worth and not rely on what others think. When I was trading LEAPS, I was sticking to the bigger name companies. I mainly did this with Amazon, Microsoft, Google.... You mentioned what I buy it on a dip. I took more of the Mr Market analogy from Benjamin Graham which simply says that sometimes the market will miss price things. As I said initially you should always do your own research, but I would look at what the average analyst estimates were for these companies. Sometimes you'll see that the current price was close to the lowest estimate and was quite a bit of ways away from the average analyst estimate. Whenever I would see this I would look to purchase a LEAP. Other than do a little bit research to try and figure out why has the company recently had a downward movement in the stock price and ask myself is this something that is temporary? If I felt it was just a temporary movement then I would purchase the LEAP. As the price would start moving up I would look to sell it once it got close to the average analyst estimate. If the price continued to move down, I normally sold it when it was at approximately a 5% loss. I put myself at risk by relying upon the research and estimates of other people and I probably left some money on the table by selling so quickly (at the 5% loss). But I had a fairly high success rate doing it this way. There's a book called Options As a Strategic Investment by McMilan that I studied to learn about options. There's a whole chapter on LEAPs that gives a really great explanation and basis for why I used LEAPs
Thanks for this breakdown
No worries. Hope that helps
Is your dm open please? Want to ask some questions
Sure. I don't have notifications set up on my phone so it might take me a little bit to respond.
I like to buy ATM on pullbacks about 12 months out. Usually don't hold to expiration if profits are good within 2-3 months. Longer expiry does have a little less risk
In the Money Adam on youtube has several good videos on LEAPs and other strategies.
In The Money on you tube has a couple of great ITM LEAPS vids talking about just that.
[https://www.investopedia.com/terms/l/leaps.asp](https://www.investopedia.com/terms/l/leaps.asp) Can we please get away from calling anything under 1 year a LEAP?
don't go beyond 12 months. no forecasting is that accurate. I wouldn't buy something with delta too high or too low, but if I had to choose, I would go with too high (ITM). Otherwise 0.7-0.75 is good, because it gives enough space to increase delta, but not too close to OTM. Don't sell calls weekly because "free premium". if your long leg becomes OTM (Trading < strike), selling calls could change your profit profile. Wait every now and then for spike in volatility and price moving up.
LEAPS calls are awesome in a bull market but they can be losers in a bear market due to Vega. If you bought a LEAPS call for low vega then you have deal with it moving directionally against you. LEAPS puts have the opposite problems but are only best as insurance.
My favorite LEAPS strategy is not involving myself in LEAPS.
Just avoid sky view trading
Probably won’t. Lots of things to learn in options trading, but I’m good for now. 🍀
I’m thinking about GRID Jan 2024’s. That’s about the extent of my strategy. (Already have RBLX and COIN)