Hey everybody! I’ve been considering making a LEAPS trade for a long time now, but I am unsure on a few points.
My goal is to do a Poor Man’s Covered Call by buying a good call option after a sizable dip. I want to figure out what the best way to do it is, and whether or not this can go sideways for me in ways I don’t already know about.
First: what platform is best to use when making these trades? Right now my portfolio is in Firstrade. Are there better platforms to do this on, or does Firstrade suffice?
Second: What is the correct sized dip to buy the option after, and on what stock?
I am definitely leaning toward buying the call on an index (maybe SPY, probably QQQ). Is that the right idea?
And I know I should buy after a dip, but how large should the dip be? 5%? 10%? I know there isn’t one specific “best time”, but what is a good rule of thumb?
Third: How long should the option last for?
Would 9 months work alright for my first time? Should I go for longer? I know time gets cheaper the farther you go out so how far SHOULD I go?
Forth: what is the best strategy for selling the calls against my call? I’ve heard a lot of people with a lot of conflicting opinions.
Finally : if one of the calls I sell gets exercised, I lose the long term leg of my option, correct? I won’t have to pay for 100 shares of the underlying? I know that may sound like a dumb question but I want to make sure I won’t get financially destroyed bc I made an error here.
Thank you all for your help and I’m sorry if this is king of long. I want to understand fully what I am getting myself into.
Posted by Cadethedank