Need help to protect my ITM leap call

[seotrader]

Hello,

I want to buy deep in the money GOOG 410 JAN11 call at around 20,000$
I want to sell covered calls every month against it ( for the next month) , an average of 2% per month

I also want to protect my invested capital in a not very expensive way

For example the JAN11 580 put cost 6810$ and the MAR10 580 put cost 3150$ which are both very expensive.

I just wonder if someone has a strategy to protect your leaps position using puts but in a cheaper way.
because for example if i'll buy the MAR10 , its 15% of the invested capital just for 4 month protection

Thanks

 

[Rhody Trader]

Why do you want to buy a deep ITM option?

 

[seotrader]

Exactly like it sound
For example buy GOOG 410 JAN11 call
Is deep in the money because google current price is around 585$

 

[Rhody Trader]

You seem to have miss-understood my question. For what purpose would you buy the deep ITM GOOG call? Is this a price directional speculative play? It's alot easier to respond to your strategy question if we know what your objective is with the base position.

 

[seotrader]

I hold at as stock replacement for the long run , hopefully until JAN11 expiration

 

[Rhody Trader]

So you're attempting a type of buy/write strategy with the ITM LEAP acting as proxy for the long position. One thing I'd look closely at is the amount of time value you have priced into those LEAPS, because the erosion of that value is going to eat into the income you make off the OTM writes. Also, keep in mind the cost of exercising the LEAP should your OTMs get called, since you'll have to buy the GOOG shares to meet the call.

As for buying puts, yeah, they are going to cost you. Implied Vol would likely have to be quite low for buying them to not to render the buy/write returns unworkable.

 

[seotrader]

I'm trying to buy the LEAP with only little time value ( delta close to 1) , so it won't be eaten, and still I will pay a cheaper price compared to buying the stock or paying margin interest.

Yeah , the puts are expensive, looks like there is no way around.

Just trying to figure a way to finance my put ( put calenders or put vertical speads ) , but still not to loose money if my stock doesn't move...

 

[Rhody Trader]

You can certainly use spreads to lower your put cost. In doing so, however, you are giving away some of your protection - potentially a lot of it.

 

[jaspertrademaster]

Slow and sready win the race.