Trading Covered Calls on LEAPS - Part 4
One of the most significant benefits of covered calls or diagonal spreads is the hedged position it creates. The premium from the short call offsets some or all of the losses on the long call with the further expiration if prices drop.leaps

I am convinced that managing risk as a trader is one of the most important things we can do. That makes diagonal spreads or covered calls on LEAPS a very attractive strategy. The risk management within this trade can help to put you one step ahead of market volatility. 

In the video I will go over what happens to this trade when prices drop. If the short call expires out of the money you will keep the entire premium and owe nothing. However, the long call will have sustained losses. It may become necessary to sell the long call and reconstruct the trade with a new in the money long term option or LEAPS call before you sell another call in the short term.  

Click here for the first part of this article on selling covered calls on LEAPS.
Click here for the second part of this series on selling covered calls on LEAPS.
Click here for the third part of this series on selling covered calls on LEAPS.

Ask your questions about this strategy in the options trading forums.

Additionally, you can find more information about trading short options and covered calls from the links below.

- Trading short options
- Selling covered calls on long stocks
- The difference between European and American style expiration.

Learning Markets Video Click here to see the what happens to a diagonal call spread or "covered call on LEAPS" when prices drop.

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Comments Add New
Anonymous   |2009-03-06 20:35:15
Hi!

Where would be a good site to paper trade options?

Great videos btw
John Jagerson  - CBOE.com   |2009-03-07 05:25:56
go to CBOE.com and under their trading tools they have two great papertrading
applications that are free and replicate the brokerage platform really
accurately.
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3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."
 

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