My logic is that there are two dynamics I'd like to get from the leaps, and I can theoretically get it from a single position. In practice though my emotions stand in my way. So rather than trying to get new emotions, I work with them
One reason I buy these distant calls is that I want to be aggressive with my cc sales, within a larger income objective. To make something up reasonably close to the current environment - if I sold cc's that go ITM, so I roll them (for strike improvement), and they again go ITM, etc.. Eventually getting to a 750 strike while the shares go to 800 and keep going, I'll "take assignment" (sell the leap, BTC the cc), knowing that the leap will be profitable AND I'll keep all of the CC premiums I collected. That will be GREAT from an income perspective. And SUCK from a capital gain perspective (I missed out on the additional share price rise past $750 to at least some degree).
But I'm in it for income, so that's a great outcome for me.
The emotion is this. I get attached to my shares, and I'm finding that I get attached to my longest dated calls also. With that attachment comes bad decisions designed to keep from giving those up (like rolling when I'm deep ITM, hoping real hard that the shares come back).
So my plan is to hold two 'classes' of purchased calls. I don't really know the proportion yet, though it's around 3 closer / 1 later in one account, and 50/50 in a second.
1) The shorter dated calls are ones that I'm emotionally able to take assignment on, pretty easily. I can be really aggressive with the CC sales against these and if/when they get called away, I'm totally good with that (great income!) and I'll decide then what to do. Stay in cash to back more put spreads, or buy replacement calls and sell more CC.
2) The longer dated calls are share replacements. As such I'm selling reasonably aggressive calls, but not as aggressive (that's the theory anyway), and I'll work harder to avoid assignment, while STILL being ready and willing to take assignment. I know that I'm more willing to have these assigned than shares, and that's really my goal - actually being ready to take assignment, so I don't feel backed into a corner trying to avoid selling my shares.
What that means for me, in practice.
- I started this off with those December 2021 500 strike calls. My thinking was to minimize the cost of each call I purchases while still buying multiple months of CC sales. It's worked but I only bought these 6 months out and I plan to close these at 3 months to go, so that I minimize the time decay I'm paying for. I won't buy this close again - I'll be farther out.
-- I'll probably aim for 9-12 months out when I replace these calls with something new. This is what I'm thinking right now. A 9 month option gives me 6 months of CC sales and the 12 month option gives me 9 months of CC sales. That sounds better than a 6 month option providing 3 months of CC sales.
-- These are my aggressive calls, with intent to be taunting the share price, daring to push me deep enough ITM to take assignment instead of continuing to roll. I'll miss out on a lot of capital gains when this happens, but I'm in it for income, and the income will be great before it happens, and even better in assignment.
-- I don't know what my actual ownership window will be. And I might even lose money on the purchased call when I replace them with new. Whatever happens with the long dated call is pretty much ok with me - I'm getting roughly $10/week right now selling the CC, so 3 months / 10 weeks provides for a pretty big range of positive outcomes (I am assuming I'm in the market 10 weeks per quarter now; that leaves me some latitude in what I actually do).
- I also bought June 2023 300 strike calls. They were so far ITM that I paid something like $50 or $60 for the time value up front. I could buy 2 of these for roughly the price of 100 shares, so I got some leveraged exposure to moves up in the share price (roughly .9 delta each, so 1.8 delta total). And I can sell these with about 3 months to go and get back 1/2 of that time value, making these even cheaper to own.
-- OH - and once I'm past a 12 month ownership window, in the brokerage account, these will get long term capital gains treatment.
-- I'll be much more focused on rolling for strike improvement over credits with these as these are share replacements.
-- WHILE also being much more willing to take assignment than I am with shares. I am REALLY attached to my shares, even when that isn't the best financial choice
The option you're looking at: 0622 C350 @$360. The way I analyze that is that with the sahres at $680 you are buying $330 worth of intrinsic value, which leaves $30 in time value. Paying $30 time value for 11 or 12 months on the option sounds like a sweet deal to me. That option will probably be down to around $10-20 in time value with 3 months to go, so your actual time value you're paying for is more like $10.
Unless of course the shares take off - you might be getting effectively no time value when you sell, but that's because the shares are at $1000 and the option is worth more like $650 than the $360 you bought it for. That's an ok outcome
I also like that strike because the likelihood that will go ITM is extraordinarily low. I like only selling lcc against ITM calls so I want a strike I am very confident (>99%) it won't go ITM.
I might also look at the June 2022 500 strike at $243ish. I'm buying $180 intrinsic value and therefore $63 of time value. I'm getting a bit more leverage at .80 delta instead of .92 delta. That's pretty close to 3 calls for 100 shares and with some extra cash I might be able to get a 4th long dated call in a position where I want to be more aggressive with the sales.
For myself with shares in the 600s I don't think I get closer than the 500 strike. At the 600 strike I think that the likelihood of a pull back that pushes me ITM is too high.
