Buy Write using LEPOs

[burntbefore]

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

 

[wayneL]

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

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

 

[burntbefore]

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

 

[wayneL]

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

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

 

[sails]

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

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

 

[wayneL]

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

No worries, yours is a better response anyway

Cheers

 

[burntbefore]

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

Thanks


Tony