# Buy Write using LEPOs



## burntbefore (8 July 2006)

I am considering doing Buy Write using LEPO's 

Bull collar
Buy LEPO
Sell Call 
Buy Put for security 


Has anyone out there traded buy-write using LEPO's instead on stocks. I have done some research and feel confident it will work with min risk 

Does anyone out there have something to say 

Regards


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## wayneL (8 July 2006)

burntbefore said:
			
		

> I am considering doing Buy Write using LEPO's
> 
> Bull collar
> Buy LEPO
> ...




You don't need the LEPO

Just trade the Bull Call Spread, the payoff diagram is identical i.e.

Buy ITM call
Sell OTM call

same thing

Cheers


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## burntbefore (8 July 2006)

With Call Bull Spread if the market moves in the other direction you stand to lose your initial investment or the cost of the spread.

If I bought a LEPO sold a Call and bought a put for protection I stand to lose only the setup cost like the brokerage cost if the stock moved against the Call option as the Put would protect me. If the stock moved up by the expiry I stand to make a profit which would be the difference between the point when I bought the LEPO and the Call option.

What do you think?

Tony Albuquerque


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## wayneL (8 July 2006)

burntbefore said:
			
		

> With Call Bull Spread if the market moves in the other direction you stand to lose your initial investment or the cost of the spread.
> 
> If I bought a LEPO sold a Call and bought a put for protection I stand to lose only the setup cost like the brokerage cost if the stock moved against the Call option as the Put would protect me. If the stock moved up by the expiry I stand to make a profit which would be the difference between the point when I bought the LEPO and the Call option.
> 
> ...




Put it all in a strategy modeller, as long as all the strike prices are the same, you will see there is no difference.

Cheers


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## sails (8 July 2006)

burntbefore said:
			
		

> With Call Bull Spread if the market moves in the other direction you stand to lose your initial investment or the cost of the spread.
> 
> If I bought a LEPO sold a Call and bought a put for protection I stand to lose only the setup cost like the brokerage cost if the stock moved against the Call option as the Put would protect me. If the stock moved up by the expiry I stand to make a profit which would be the difference between the point when I bought the LEPO and the Call option.
> 
> ...



Hi Tony,

The sold call would remain the same in either strategy, so the only thing being compared here is a lepo+put vs. a long call.

If the ITM call is purchased at exactly the same strike and month that as the put,  both strategies would have the same risk.

By simply buying the ITM call, it saves on one set of fees and also considerable slippage as I believe the bid/ask spread on lepos can be fairly wide due to limited liquidity - this could well be another reason to favour the ITM call.

Hope this helps!

PS - sorry Wayne - didn't see your post when I hit submit


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## wayneL (8 July 2006)

sails said:
			
		

> PS - sorry Wayne - didn't see your post when I hit submit




No worries, yours is a better response anyway  

Cheers


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## burntbefore (9 July 2006)

thanks gentlemen I have to go back to the drawing board and view my stratergy

Thanks 


Tony


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