Comments on: The Three Horsemen of Income http://blog.poweropt.com/2006/02/17/the-three-horsemen-of-income/ PowerOptions offers you the convenience and control required to automatically sort, filter, and analyze all 2,800+ optionable stocks and 180,000+ options online to find investments to meet your profit goals. Thu, 28 Aug 2008 02:12:22 +0000 http://wordpress.org/?v=2.0.1 by: admin http://blog.poweropt.com/2006/02/17/the-three-horsemen-of-income/#comment-55828 Thu, 26 Apr 2007 06:59:50 +0000 http://blog.poweropt.com/2006/02/17/the-three-horsemen-of-income/#comment-55828 The Calendar LEAP spread is a bullish strategy. Most investors use this strategy to mimic a covered call spread but leverage their costs. Although we do not have a record of successful spreads over the last year, any optionable stock that had a bullish trend would have potentially yielded highly profitable Calendar Spreads. At PowerOptions we offer a suite of tools that allow investors to find only those spreads that match their criteria, as well as a back testing tool that allows subscribers to see past Calendar Spread trades that match their criteria and what those positions would have returned. Most Calendar LEAP traders will look for the delta of the long option to be at least .60, while also looking for a delta ratio of greater than 1.8 or 2.0. The Delta Ratio is the delta of the LEAP divided by the delta of the short option. A ratio of 2.0 means that the LEAP will gain twice as much in value for each one point movement of the underlying stock. The profit/loss management is really up to the individual investor. Some will look to trap gains of 10% or 15% within the first couple of weeks, others will look to continue to roll the position for several months to drastically lower the cost basis of the LEAP. Regarding the decline, some investors will roll the short option if the stock drops significantly below the short strike but is still above the LEAP strike. Others might look to close the position if the LEAP option loses more than 33% of its value, where others might close the position if the stock drops to the LEAP strike price. The Calendar LEAP spread is a bullish strategy. Most investors use this strategy to mimic a covered call spread but leverage their costs. Although we do not have a record of successful spreads over the last year, any optionable stock that had a bullish trend would have potentially yielded highly profitable Calendar Spreads. At PowerOptions we offer a suite of tools that allow investors to find only those spreads that match their criteria, as well as a back testing tool that allows subscribers to see past Calendar Spread trades that match their criteria and what those positions would have returned.

Most Calendar LEAP traders will look for the delta of the long option to be at least .60, while also looking for a delta ratio of greater than 1.8 or 2.0. The Delta Ratio is the delta of the LEAP divided by the delta of the short option. A ratio of 2.0 means that the LEAP will gain twice as much in value for each one point movement of the underlying stock.

The profit/loss management is really up to the individual investor. Some will look to trap gains of 10% or 15% within the first couple of weeks, others will look to continue to roll the position for several months to drastically lower the cost basis of the LEAP. Regarding the decline, some investors will roll the short option if the stock drops significantly below the short strike but is still above the LEAP strike. Others might look to close the position if the LEAP option loses more than 33% of its value, where others might close the position if the stock drops to the LEAP strike price.

]]> by: Steve Rude http://blog.poweropt.com/2006/02/17/the-three-horsemen-of-income/#comment-55772 Wed, 25 Apr 2007 09:12:51 +0000 http://blog.poweropt.com/2006/02/17/the-three-horsemen-of-income/#comment-55772 Do you have a list of calendar leap spreads that were profitable this year? What delta values should I be looking for in the short and the long calls? How much should I profit or lose before buying back the short? Thanks. Do you have a list of calendar leap spreads that were profitable this year?

What delta values should I be looking for in the short and the long calls?

How much should I profit or lose before buying back the short?

Thanks.

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