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+Chapter 25: LEAPS 391 
+make from the LEAPS write with returns that can be made from repeatedly writing 
+shorter-term calls. Of course, there is no guarantee that he will actually be able to 
+repeat the short-term writes during the longer life of the LEAPS. 
+As an aside, the strategist who is utilizing the incremental return concept of cov­
+ered writing may find LEAPS call writing quite attractive. This is the strategy where­
+in he has a higher target price at which he would be willing to sell his common stock, 
+and he writes calls along the way to earn an incremental return (see Chapter 2 for 
+details). Since this type of writer is only concerned with absolute levels of premiums 
+being brought into the account and not with things like return if exercised, he should 
+utilize LEAPS calls if available, since the premiums are the largest available. 
+Moreover, if the incremental return writer is currently in a short-term call and is 
+going to be called away, he might roll into a LEAPS call in order to retain his stock 
+and take in more premium. 
+The rest of this section discusses covered writing from the more normal view­
+point of the investor who buys stock and sells a call against it in order to attain a par­
+ticular return. 
+Example: XYZ is selling at 50. The investor is considering a 500-share covered write 
+and he is unsure whether to use the 6-month call or the 2-year LEAPS. The July 50 
+call sells for 4 and has 6 months of life remaining; the January 50 LEAPS call sells for 
+8½ and has 2 years of life. Further assume that XYZ pays a dividend of $0.25 per 
+quarter. 
+As was done in Chapter 2, the net required investment is calculated, then the 
+return (if exercised) is computed, and finally the downside break-even point is deter­
+mined. 
+Stock cost (500 shares @ 50) 
+Plus stock commission 
+Less option premiums received 
+Plus option commissions 
+Net cash investment 
+Net Investment Required 
+July 50 call 
+$25,000 
++ 300 
+2,000 
++ 50 
+$23,350 
+January 50 LEAPS 
+$25,000 
++ 300 
+4,250 
++ 100 
+$21,150 
+Obviously, the LEAPS covered writer has a smaller cash investment, since he is sell­
+ing a more expensive call in his covered write. Note that the option premium is being 
+applied against the net investment in either case, as is the normal custom when doing 
+covered writing. 
+Now, using the net investment required, one can calculate the return (if exer­
+cised). That return assumes the stock is above the striking price of the written option