Why Covered LEAPS are Better than Stock Covered Calls
Buying and selling covered LEAPS (Long Term Equity Anticipation Securities) contracts is a method used by many stock market option traders nowadays. Covered LEAPS allow traders to earn profits from their stock portfolios without being required to put a stock on sale. Although they are almost similar to covered calls, covered LEAPS differ from the regular options in the span of time for the contracts to expire. A LEAP takes longer to expire than regular options, which involve both buying and selling stocks. Because of longer expiration, LEAPS enable an option seller to obtain more premium money after an option is sold.
Stock traders make money from covered LEAPS through a leap option contract sale. They use shares that are held as collateral in their trading account which is monitored with stock charting software. This activity works like writing a covered call because LEAPS represent 100 shares of stock as regular put or call options do. Covered LEAPS offer a lot of benefits, making them superior to standard stock covered calls. The first and obvious advantage is that you can expect a larger premium because of the longer time it takes for the covered LEAPS to expire. Isn’t that a great deal? Second, you can receive lower trading commissions through LEAPS whenever you are implementing a covered call tactic in which you sell your new call contract against your stock. Selling the contract must be done after the old contract expires. Lastly, the longer expiration period of LEAP contracts gives a stock trader ample time to make plans that take into account a known risk-reward component.
To sum it up, trading covered LEAPS can be a worthwhile investment activity. Covered LEAPS are just as simple to use as standard options. When you work with covered LEAPS in a covered call tactic, you are sure to gain a number of benefits. Therefore, it pays to consider using LEAPS contacts as an essential part of your covered call writing tactic.
