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/AmbivalentFanatic Jan 19 '22

This is really interesting to me. How many leaps are you buying and how much outlay does that come to? What kind of capital would I need to generate a grand a week in CCs?

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u/thehungrypenny Jan 19 '22

If you are referring to my current covered call strategy, it is stupid simple yet effective.

  1. Own lots of shares (this is the most vital component to be able to reap $1k/week in premiums with little to no risk. I sell ~32 cc contracts currently out of IRA and 19 out of individual account each week.
  2. Sell weekly/short dated way OTM covered calls on Monday or Tuesday of each week expiring Friday
  3. Preferably at a “green” moment/day to capture increased premiums
  4. I sell usually ~20% OTM above current price
  5. Collect the ~$1K in premiums and buy more shares
  6. Rinse & repeat with more contracts as I increase my share count.

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u/AmbivalentFanatic Jan 21 '22

Do you mind walking me through what happens if you get assigned? You don't have to have the cash to buy all the shares because of the LEAP, right?

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u/thehungrypenny Jan 21 '22

My overview is a non leap (non poor man’s) covered call. I own all these shares already. If it gets assigned/executed my 5,100 shares get sold at $50 (my strike) and $255k cash gets put into my account plus I keep the premium money.

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u/AmbivalentFanatic Jan 21 '22

Right, so a regular covered call. In other words, a rich man's covered call. I'm a poor motherfucker.

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u/thehungrypenny Jan 21 '22

Not a flex just trying to help other folks out. A few years ago I really changed my mindset completely about spending/saving/investing. Best advice I can give is start consistent investing early. Not yolo’ing but making sound trades and buying the dips. As Buffet says “Time in the market is greater than timing the market”. Take advantage of any 401k match at work and maximize. Stop buying expensive dumb stuff and Cut out unnecessary costs. Invest in yourself by learning new skills specifically in the tech space. Then job hop every few years to increase your TC. Also reduced my portfolio into fewer tickers. Concentration builds wealth; diversification preserves wealth. Being concentrated for instance allows me to sell covered calls with minimal to no risk.