Choosing the Long LEAPS for Poor Man's Covered Calls
Tastytrade performed a study on Poor Man's Covered Call vs Rich Man's Covered Call (conventional CC) vs days to expiration for a long call
Purpose is to select the most capital efficient DTE to purchase LEAPS as collateral
Inputs of the study:
✔️Study period: 15 years
✔️Symbol: $SPY
✔️Short option DTE: 45 days
✔️Short option delta: 30
✔️Longs call deltas: 60, 70, 80, 90
✔️Long call expirations: 45, 60, 120, 1 year
✔️Exit: all positions closed at short option expiration
Takeaways:
✅Covered calls has been generally successful strategy for past 15 years
✅PMCCs were able to recreate almost all of the success of conventional covered calls (with owning 100 shares)
✅70 delta and 60DTE provided nice balance of capital efficiency without giving up profits or reliability compared to a rich man's covered call (conventional)
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How to generate weekly income from options selling?
Select high volatility stock (e.g. $MSTR $MSTX $SOXL $TQQQ $SPXL $TSLL $NVDL $IBIT $TNA)
Stock that you do not mind owning for at least few months
Sell put options using following:
✅ 7-14 days to expiration
✅ 15 delta
✅Ideally on a red day or a second red day (elevated premiums for Puts)
✅ideally when RSI<20
If you got assigned switch to a Covered Call
✅ 7-14 days to expiration
✅ 15 delta
✅Ideally on a green day or a second green day (elevated premiums for Calls)
✅ideally when RSI>80
RINSE AND REPEAT
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