OK, now i think I understand.
If the underlying Stock/ETF falls you have three choices:
1. Retain the Stock/ETF and sell calls against it at (Though you won't continue to receive income as high as original trade and if stock falls far enough you may not find any premium available).
2. Roll down a couple of strikes to maintain a 80+ Delta. This will require additional capital.
3. Purchase additional Leaps at the newer lower price and sell calls against them. When the stock/ETF returns to the original entry price you sell the added leaps to return to your original trading plan. This will necessitate additional capital until the stock/ETF returns to the original entry price.
Dr. Joe it sounds like you belong to the choice number three strategy. Choice number two necessitates additional capital, but it differs from choice two in that the capital can be recovered by return to the original stock price.
Thanks,
Leo
From: joe & leigh <gass20@aol.com>
To: ConservativeOptionS
Sent: Tue, May 4, 2010 8:40:34 AM
Subject: [ConservativeOption
leo, not sure what you are asking. if first email you said if underlying drops to 118 would i roll up from the 90 strike to 85 strike???? if you meant roll down, i would sell at 90 for less than i would have to pay for the 85 and this would cost me money. if i rolled up from 90 to 95 i would take money out but at the cost of my delta. i generally never roll leaps, make adjustments, at same expiration month. i wait and roll out when new leaps available and there is about 12 months to expiration.
--- In ConservativeOptionS trategies@ yahoogroups. com, Leo <leobusc@... > wrote:
>
> Dr. Joe:
>
> I understand why you buy the additional leaps. My question is why do you do this instead of simply rolling your existing leaps two strikes or so?
>
> This way would also provide you with the additional premium wouldn't it?
> Leo
>
>
>
>
> ____________ _________ _________ __
> From: joe & leigh <gass20@...>
> To: ConservativeOptionS trategies@ yahoogroups. com
> Sent: Tue, May 4, 2010 6:00:26 AM
> Subject: [ConservativeOption Strategies] Re: spy dls update
>
>
> leo, i trade mostly spy, iwm, eem. three diversified etf's. i liked the technicals on eem recently. i use 3 month linear regression and stochastics. ....eem was on the bottom channel of the second standard deviation in a 3 month uptrend and stochastics showed an oversold position.
>
> re: dls. i have an income goal monthly. i calculate (explained in detail in paper) how to determine strike to sell to avoid selling leaps below cost basis. the more underlying drops the further otm the short call strikes will be. at some point if underlying drops continue dropping you will not be get enough premiums to meet your income goal. that is when i buy more leaps using same criteria as the original ones. buy enough to just meet your income goal. drjoe
>
> --- In ConservativeOptionS trategies@ yahoogroups. com, Leo <leobusc@ > wrote:
> >
> > Dr. Joe:
> >
> > I read and enjoyed your paperof DLS and am trying out a SPY trade buying the
> > Dec 2011 90 calls and selling the May 2010 122 Calls.
> >
> > My question is about your strategy on pullbacks. I understand that in the event of a drop in the underlining you don't like selling calls for less than your entry price. Do you always buy extra calls or do you sometimes roll up? ie: Should SPY fall to 118, I might than roll my Dec 2011 90 Calls to the Dec 2011 85 calls.
> >
> > Now your plan suggests buying more calls (which I guess would be the Dec 2011 85 calls. Is your logic simply put buy low and than sell some of the original Dec 2011 90 calls when the price returns to original levels?
> >
> > Thanks,
> > Leo
> >
> > P.S. I also interested in your EEM triple put trade. Why did you select EEM?
> >
>
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