Ask Alan # 199: Covered Call Writing with a Delayed Long Leg

Alan answers a question posed by Ilya, who asks:

Alan,
I would like your thoughts on a strategy I call “covered call writing with a delayed long leg”. First, write a naked deep OTM call on a liquid ETF, like SPY. If the underlying approaches the strike price, we buy it. I like it in bear markets. Your thoughts?
Thanks,
Ilya

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Alan analyzes a proposed bear market strategy where a deep pout-of-the-money naked call option is sold and if share price moves up to that strike the shares are purchased prior to potential exercise. A real-life example with SPY is used to show the pros & cons of such a strategy. The BCI Trade Management Calculator provides the specific calculations for these trades.

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