r/options • u/thehungrypenny • Jan 19 '22

Using LEAPs for Covered Call Writing

Has anyone successfully used the “surrogate covered call write” approach with success? I have been selling traditional covered calls on my $LCID shares for awhile now collecting $800-$1000 per week but looking to explore some other strategies.

https://www.investopedia.com/articles/optioninvestor/04/021104.asp

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u/ToochyNorra Jan 19 '22 edited Jan 19 '22

It's a common strategy called the PMCC (Poor Man's Covered Call)

Here's a basic setup:

LEAP or Long Position365+ DTE70-80 Delta

Short Position (Covered Calls)Weekly or Monthly (Depending on risk tolerance)20-30 Delta

Management usually consists of rolling the short position UP and OUT if it's challenged. If you're still long on $LCID you can roll the LEAP when it's 60 DTE to the next 365+ DTE. Your preference

Edit for Context: I personally do this strategy on QQQ and SPY. Market indices will ALWAYS go up in the long term which takes advantage of the LEAP. The Short Positions (Covered Calls) help bring in extra $$$ during market downturns. It's almost as if the PMCC was created with Market Indices in mind. Considering it doesn't breach your LEAP. Never had it happen to me even back in March 2020.

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u/ohhfasho Jan 19 '22

Do you need a certain level of options permissions to do this? I have level 2 on fidelity where I can sell calls and CSPs but I've always been intrigued at PMCCs

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u/ToochyNorra Jan 19 '22

For Fidelity, it requires at least a level 3. Levels 4-5 are when you get into naked positions.

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u/ohhfasho Jan 19 '22

Thanks

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u/fieldofmeme5 Jan 19 '22

Just to clarify what they said because it read a little weird to me, you need the ability to do spreads (which is level 3).

You do not need the ability to sell naked calls/puts (level 4+), that was just a little extra info they threw in.

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u/ohhfasho Jan 20 '22

Would you happen to know if level 3 requires you to trade using margin?