Good post, thanks. I've been thinking about this, and does it entail some opportunity cost.
Right now I can get about jan 2024 $850 call for 61k, so that's about the cost of 50 shares. It will use up 61k of my cash reserves, and about 50k of maintenance margin. So looks like with IB, calls don't give much of margin at all. Then I can sell one covered call against this, say 11/12 1400 call pays $9.70.
Or I can take that 50k and sell 5 $100 wide bull put spreads, that would be 5x -900/+800 bps for example.
Looking at this math, looks like I'm better of sticking with bull put spreads.. of course right now IV is high, so it's not a good time to buy leaps.
Feels like this is a good strategy, if you want to own leaps instead of stock. But bying leaps in order to to be able to sell poor man's covered calls doesn't seem so great after all.
Especially in my situation, where holding an appreciating asset over 10 years will provide a significant tax reduction. Also I do not plan to sell any stock in the foreseeable future.. leaps I would have to sell at the very latest at expiry, and then I would have to pay 34% tax on capital gains on those leaps.
All true.
NOT-ADVICE
And also - a portfolio management approach that I'm still thinking about and starting to implement, rather than something I've been doing for awhile and have all dialed in.
There are two additional dynamics that leads me to doing these call diagonals (poor man's covered calls). The first is that I prefer having positions on both sides of the share price, or at least the ability to put on meaningful positions on both sides. I don't like doing ICs, but these provide me the call side of an IC like position - profit whichever way the shares go, with each side providing something of a hedge for the other side.
The second is a portfolio management, and adiggs management, dynamic. I have a tendency to use everything available in my positions. I'll use an account with $1M cash to sell 100x$100 wide put spreads for instance. I'll keep em really conservative to make up a really high win rate, but if one of those loses badly then I'll be in trouble. And a related notion - do I compound the positions by taking the $30k gain one week and turning that into 103x$100 wide spreads the next week, and so on? That looks amazing in a spreadsheet, but maintains the % impact of a negative event. And my own personal tendency is to do exactly that.
So my inclination is towards these large and concentrated positions, and to use the accumulating cash to continue growing them.
Where I think I'm headed with this is a roughly 1/3rd cash / 2/3rd leap account distribution. I consider the 2/3rds in leaps to be readily available cash that I won't be using for put spreads. If it helps think of these as retirement accounts, so there isn't any incremental margin that needs to go into the calculation.
Now in that $1M account I'm using ~$333k for put spreads, and the other 2/3rds are in leaps. That gets me a LOT of delta but mostly the resource is in use and keeps my put spread sizing down. As the value of the account increases I will periodically reevaluate and decide whether I need more or less leaps to stay in the vicinity of that 1/3rd to 2/3rds ratio.
I think of the leaps as being cash, specifically for the purpose of restarting the put spreads should I take a serious loss in the spreads. I'll be in 100% max loss positions, so taking 20-50% losses are certainly something that needs to be planned for.
Maybe I go 50/50 but the principle and motivation are the same. I'm not in this for a week or a month of good trades; I hope to make this my family's income for years to come. Until we have so much that we really don't want to continue or I get bored with it. I need to maintain a buffer that handles any big losses.
This rebalancing process will, I think, get me into a dollar cost averaging position with a tendency to sell leaps at relatively high share prices (big share price run pushes the value of the leaps above the 2/3rds level, causing me to sell some of those leaps via aggressive cc's, to bring the cash/leaps ratio back in line).
A big share price drop will leave me with more cash than the target ratio, and therefore I'll be buying some leaps to bring the account back into line. Thus buying leaps on the way down and at relatively low prices.
Buy low, sell high, and now I've given myself permission to run very large and concentrated positions with the ability to take high % losses early and keep the income flowing.
Or so I'm theorizing and starting to drift towards.
. Have paid taxes only on gains from CCs and the such.
