Buy Leap Sell Covered Call May 2026

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The mechanics of the PMCC rely on the interplay between two different expiration cycles and strike prices. To initiate the trade, an investor purchases a LEAPS call—typically with an expiration one to two years in the future—with a delta of 0.80 or higher. This high delta ensures that the option price moves in close correlation with the underlying stock. Against this long position, the investor sells a short-term out-of-the-money (OTM) call, usually expiring in 30 to 45 days. The goal is for the short call to expire worthless, allowing the trader to keep the premium and repeat the process, effectively lowering the cost basis of the LEAPS position over time. buy leap sell covered call

The primary advantage of this strategy is leverage. Purchasing 100 shares of a high-priced technology stock like NVIDIA or Microsoft can require tens of thousands of dollars in capital. A LEAPS contract, however, might cost only 20% to 30% of the price of the actual shares while providing nearly identical exposure to upward price movements. This increased capital efficiency significantly boosts the potential return on capital (ROC). If the underlying stock remains stable or rises modestly, the monthly income from selling covered calls can eventually pay for the entire cost of the LEAPS, leaving the investor with a "free" long-term bullish bet. AI responses may include mistakes

Time decay, or theta, also plays a dual role in this strategy. The short-term call benefits from rapid theta decay, which works in the trader's favor. Conversely, the LEAPS position also loses value over time, though at a much slower rate. The success of the PMCC depends on the "theta spread"—the difference between the daily decay of the short call and the long call. As long as the short call decays faster than the LEAPS, the trader captures a net positive time value. To initiate the trade, an investor purchases a