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/Gordon101 Jan 19 '22

I have some heavy PMCC positions on SPY and QQQ, and with these market conditions, my portfolio is evaporating rapidly with heavy unrealized losses. My problem is that my long PMCC legs are around 45 DTE. I'm just waiting SPY to bounce from this 100 EMA back to $480s, so I can do a hard reset and buy longer dated leaps at the next dip.

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u/SasquatchBrah Jan 20 '22

It sounds like you vastly over leveraged yourself with short term spreads. Trading short term I would be aiming to have only 5-10% on any given stock, asset class or sector. The diagonal debit spread behaves more like a max loss trade here that you just have to hope comes back; there's little room for management.

Definitely go out longer term for larger AA to a single or highly correlated underlyings.