Chapter 25: LEAPS 399 
Treasury bill and earn interest over the two years that the put write is in place. Even 
if the T-bill were earning only 4% per year, that would increase the overall two-year 
return for the naked put sale by 8%, to 32.4%. This should make it obvious that naked 
put selling is rrwre strategically advantageous than covered call writing. 
Even so, one might rightfully wonder if LEAPS put selling is better than selling 
shorter-term equity puts. As was the case with covered call writing, the answer 
depends on what the investor is trying to accomplish. Short-term puts will not bring 
as much premium into the account, so when they expire, one will be forced to find 
another suitable put sale to replace it. On the other hand, the LEAPS put sale brings 
in a larger premium and one does not have to find a replacement until the longer­
term LEAPS put expires. The negative aspect to selling the LEAPS puts is that time 
decay won't help much right away and, even if the stock moves higher (which is 
ostensibly good for the position), the put won't decline in price by a large amount, 
since the delta of the put is relatively small. 
One other factor might enter in the decision regarding whether to use short­
term puts or LEAPS puts. Some put writers are actually attempting to buy stock 
below the market price. That is, they would not mind being assigned on the put they 
sell, meaning that they would buy stock at a net cost of the striking price less the pre­
mium they received from the sale of the put. If they don't get assigned, they get to 
keep a profit equal to the premium they received when they first sold the put. 
Generally, a person would only sell puts in this manner on a stock that he had faith 
in, so that if he was assigned on the put, he would view that as a buying opportunity 
in the underlying stock. This strategy does not lend itself well to LEAPS. Since the 
LEAPS puts will carry a significant amount of time premium, there is little (if any) 
chance that the put writer will actually be assigned until the life of the put shortens 
substantially. This means that it is unlikely that the put writer will become a stock 
owner via assignment at any time in the near future. Consequently, if one is attempt­
ing to wTite puts in order to eventually buy the common stock when he is assigned, 
he would be better served to write shorter-term puts. 
UNCOVERED CALL SELLING 
There are very few differences between using LEAPS for naked call selling and using 
shorter-term calls, except for the ones that have been discussed already with regard 
to selling uncovered LEAPS: Time value decay occurs more slowly and, if the stock 
rallies and the naked calls have to be covered, the call writer will normally be paying 
more time premium than he is used to when he covers the call. Of course, the rea­
son that one is engaged in naked call writing might shed some more light on the use 
of LEAPS for that purpose.