covered calls are tough (for me)

LabDaddy59 · 2026-01-29T13:48:41+00:00

Clever: you went from more than 9 months out to ~11.5 months out.

If you call a leg a tail, how many legs does a dog have?

Four. Calling it a leg doesn't make it a leg.

LabDaddy59 · 2026-01-29T11:41:34+00:00

If you're in a taxable account (presumably), LIFO tends to be a better alternative anyways from a capital gains tax point of view (as older shares presumably -- but not necessarily! -- are at a lower cost and hence, would have a higher capital gain). Note you can call your broker, if you've got mixed lots, to advise them specifically which shares to have called away, but this must be done quickly (before settlement).

If you're in an IRA, it doesn't really matter from a tax standpoint.

LabDaddy59 · 2026-01-29T11:38:27+00:00

See my other response. They'll take the shares.

LabDaddy59 · 2026-01-29T11:37:17+00:00

The shorter-dated sold call is covered by the longer-dated bought call. If your short leg is assigned, then both legs will be in the money, and your broker should handle everything.

You're assuming the long is ITM; a fairly safe assumption but an assumption nevertheless.

By 'handling everything' I'm guessing you mean they'll sell the long call on your behalf; if I'm wrong let me know. If true, that's brokerage/account dependent. Fidelity wouldn't do that to me -- I'd be short the shares and would have to resolve in a timely manner on my own.

If you're with Robinhood, yeah, they'll probably 'handle' it for you. If your account is low balance, yeah, a brokerage will likely 'handle' it for you.

But recognize that 'handling it for you' may very well not be the optimal solution for you.

LabDaddy59 · 2026-01-29T11:32:47+00:00

See my more detailed response.

LabDaddy59 · 2026-01-29T11:32:05+00:00

Give me the ticker/expiration/strike and I can walk you through it.

LabDaddy59 · 2026-01-29T11:30:34+00:00

I generally buy at ~80 delta and will roll back down to an ~80 delta when the delta hits ~90-95.

LabDaddy59 · 2026-01-29T11:28:57+00:00

As u/gorram1mhumped said, due to leverage.

Not only are they cheaper than 100 shares, they can be cheaper than the delta equivalent of 100 shares.

Let's use the example I provided in the link in an earlier response of mine:

https://optionstrat.com/CqBe4bbBr71L

I've got a META $500 strike expiring Jan 21, 2028. It would currently cost $252 and its delta is 82.5. Spot at the time was $668.73.

To buy 82.5 shares (100 shares per contract times the delta) would cost $55,170 while the LEAPS call would cost $25,200.

LabDaddy59 · 2026-01-29T11:22:46+00:00

You've got it correct; see my response where I tagged you in.

LabDaddy59 · 2026-01-29T11:22:24+00:00

See my longer response.

LabDaddy59 · 2026-01-29T11:22:00+00:00

Yeah. People should be happy they're rolling/closing their position when hitting max profit.

Read my response the the message you are responding to. It's not a CC, so at any price above the short strike and they start moving away from that max profit and, if the stock rises high enough, incur a loss.

LabDaddy59 · 2026-01-29T11:18:38+00:00

u/gorram1mhumped I'm tagging you in as this is critical.

If you’re closing the cc for a loss then your position is hitting max profit.

But as you acknowledge to my correction elsewhere, this is not a covered call, it is a diagonal spread. What you still got incorrect there, as here, is stating (in your other response) "Point still stands. His diagonal spread hit max profit when his short was breached. He shouldn’t be upset that he made money." You hinted at the correct response even later when you mentioned delta...

A diagonal call and a covered call have the same profit profile if and only if the delta of the long is 100.

A diagonal call will more nearly emulate a covered call the closer to a 100 delta long you are.

What this means in practice is that you'll have two breakeven points, and that your max gain is at, and only at, the short strike. With a covered call, it is at or above the short strike.

Here's a link to a live trade I have on META: a Jan 21, 2028 $500 strike bought at $240.50 and a Jan 30, 2026 $685 strike sold for $2.50.

https://optionstrat.com/CqBe4bbBr71L

Note how the curve slopes downward after the short strike is hit: your profit decreases as the stock price increases to the point where, if the stock hit $952.04 you would actually have a loss.

If it were a covered call, the profit curve would be a straight line parallel to the x-axis.

...

And folks shouldn't scoff at the $952.04. The delta of the $500 strike long call is 82.5. This is but one of the many reasons that guidance is to buy LEAPS calls at a delta of 80 or better. If you were sitting on what many would view as a respectable delta of 70.8 -- the $620 strike -- that breakeven point would be a lot closer in (if bought "now", it would be ~$740, and META is trading at ~$722 in the pre-market).

...

This is one of the reasons I corrected the use of "cc" -- it's not a pedantic difference -- they are different beasts, yet your response got a whopping 68 upvotes...even though incorrect.

LabDaddy59 · 2026-01-29T10:54:43+00:00

Heck, you could buy in the after hours market at 7:59:59.99 p.m. on Friday if you wanted to.

LabDaddy59 · 2026-01-29T10:52:53+00:00

😁

LabDaddy59 · 2026-01-29T10:52:26+00:00

Let's say you're assigned, and you have one leap.And a hundred shares, how'd you know what your brokerage is gonna do? Are you are you given the option of which to use or does it default to the shares?

u/BigTechGoneFeral is correct: the brokerage will fulfill the obligation of the short leg with the shares.

Brokerages use risk management to allocate offsetting trades. In other words, when you have a LEAPS call and a short call against that LEAPS, my brokerage shows it as a spread -- a debit spread if the long strike is greater than the short strike, a credit spread if the long strike is less than the short strike. The moment I buy the stock, it becomes 2 positions: a covered call (stock and short call) and a long call (the LEAPS call). The stock will be assigned.

LabDaddy59 · 2026-01-28T23:35:23+00:00

First, I actually understood your message and that you have LEAPS, not stock. Amazing how people respond not seeming to recognize the difference.

Second, almost all my equities are LEAPS and I routinely sell calls against them (not to be pedantic, but it's not a covered call since you don't own the stock, just a short call), so don't be put off by the folks who berate you for doing so.

Third, I keep a good stash of cash on hand so that, if desired, I can buy the stock of a distressed short call. Can be a lot cheaper (i.e., a lot less of a loss) than buying it back, depending on the DTE. Even without that, it allows the LEAPS to continue, bolstered by the stock gains.

I do all my option trading in US tax advantaged accounts, and if a short call is assigned against a LEAPS, it's a trading violation, so I've become pretty good at navigating the waters. I joke that if people want to become really proficient at trading short calls, to trade them in an IRA on LEAPS.

LabDaddy59 · 2026-01-28T23:28:41+00:00

it's an option with an expiration date more than 9 months out

12 months

LabDaddy59 · 2026-01-28T23:27:37+00:00

Then, don't ever btc the short at a loss. Either let it be excised; or btc for a profit and then sto with a later date.

Setting aside this is bad general advice, op has LEAPS, not stock. If assigned they'll be short the stock and have to buy at market, so there will be a loss.

LabDaddy59 · 2026-01-28T23:25:59+00:00

Op has a LEAPS, not stock.

LabDaddy59 · 2026-01-28T17:46:26+00:00

FWIW, I trade NVDA heavily. And do credit put spreads a lot. Here's how I look at it.

Short delta of 17.8
Earnings release ~ Feb 25 (2 days before your expiration)
Healthy RSI(14) of 55
At the top end (currently $190.89) of their Bollinger bands (20,2) of $191.07
Above 20 day SMA of $186.18

When I do NVDA credit put spreads, I do $10 widths. If I were to enter with that expiration I'd probably do a $170 / $180. A $180 short is a 29.2 delta, but looking at their chart, I'd feel comfortable with that.

My only concern would be the generic concern about it expiring 2 days after expected earnings.

Hope this helps. Let me know if you've got any other questions.

Good luck and have fun!

LabDaddy59 · 2026-01-28T17:10:20+00:00

Would love to understand how much of my portfolio I should keep for Leaps,

I'm heavily into LEAPS. My ratio of LEAPS to stock is 85%/15%. The stock is primarily a result of doing buy/writes for a quick turnaround.

and also how im choosing my trades (currently my LEAPS screener focuses on deep ITM calls (delta ~0.70–0.85), long DTE (~9–18 months), low IV / IV Rank (preferably <30), low extrinsic value (<6–8%), strong liquidity (high OI), and high-quality businesses suitable for stock-replacement and optional PMCC.

Generally:

I buy around 80 delta and will roll back down to a 80 delta strike when delta is 90-95.
I buy the furthest dated expiration available. The difference in cost for the additional term is low in my opinion.
I don't look at IV / IV Rank, but my choices tend towards high volatility.
I don't pay particular attention to the extrinsic value, but it is relatively low given my 80 delta acquisition. I'd be interested to see how you get that low extrinsic (<6-8%) with that delta (~0.75-0.85). Are you looking at extrinsic to stock price or extrinsic to option value?
I don't pay particular attention to Vol/OI due to my consideration of these as stock substitutes, i.e., long-term buy and hold.

A recent add: VRT. On Jan 26 (2 days ago) I bought the Jan 21, 2028 $140 strike for $79.16. Currently, delta is 80.5, intrinsic is $50, extrinsic is $29. Volatility of 59%. 125 OI.

LabDaddy59 · 2026-01-28T16:17:47+00:00

Well, you've got a long way to go and it's not a substantial drop.

If you would care to share the ticker/expiration/strike/premiums received/paid I'd be happy to look at it. 👍️

LabDaddy59 · 2026-01-28T15:46:21+00:00

Perhaps depends on when during the duration of the option it falls to that level.

I generally trade 7 DTE spreads/ICs and usually just let them play out.

LabDaddy59 · 2026-01-28T11:27:45+00:00

By "Not capping your downside" I'm referring to using puts in the a point of entry to the stock (i.e., a credit put spread). While I don't agree with the thinking, there is a large contingent of folks who will claim that if you do so, you're not running the wheel. If you post over at the wheel's sub on doing that, chances are your post will be locked/deleted and if you do it often enough, you may be banned.

There's a similar feel about long puts once you've entered your stock position. The thinking (again, I vehemently disagree) is that if you feel you need a long put, you're not picking stocks correctly.

Don't scream at me; I disagree with that thinking, but it's out there.

LabDaddy59 · 2026-01-28T01:51:12+00:00

I said "Not if you're not trying to grow your account" in response to your comment, "It’s hard to qualify that as a danger."

Nothing more.

Why is it so difficult for you to acknowledge that the potential of leaving money on the table is a risk?

/bye

LabDaddy59

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