What do you call a covered call that uses a high-delta LEAPS call option as its underlying, instead of a stock? We posed this question as an informal contest to Options Guy readers and got a flood of great responses. Today we’ll announce the winner, whose name will be featured in the second edition of the Options Playbook.
Right off the bat I want to thank everyone for submitting names for this very common, but unnamed variation on the classic covered call. (If you’re new to this series, start by reading my initial post that defines this trade, under what circumstances traders use it, and the risks, breakeven points, costs, and max potential gain/loss info. Make sure to talk to a tax advisor about any fiscal consequence from this strategy.)
Drumroll please…our winning name is:
“Fig Leaf” from WeirdUncleJesse.
As WUJ notes, with this strategy you’re technically covered – but not quite as much as if you owned the underlying stock. Should you be assigned on the call you sold, you have some choices to make as to how you’ll obtain the stock to “cover”. (To learn more about how to manage this choice intelligently, including the risks involved, check out my original post.)
WUJ, this name hit the bulls-eye. With your permission, we’d like to credit you for the name in the second edition of the Playbook, plus send you a pair of Elvis-style TradeKing shades. Congratulations!
We got so many great names, though, I couldn’t resist rewarding a few other folks for their highly original submissions. The winner and the following “honorable mentions” will all receive some Elvis-style TradeKing sunglasses in the mail – thanks for your excellent contributions!
Great minds were thinking alike on “Leveraged Covered Call”. Both TheMechanic and MLTrader submitted this name on the same day, although technically TheMechanic came up with it first. We liked this one for sheer accuracy and succinctness.
“Hopscotch” from Terri Luechtefeld.
Terri provided a nice explanation for this inventive name: “If you have never played hopscotch you have a numbered jump pad. In hopscotch you have to jump over a number which bears a marker, (the long call) you then jump up the pad till you reach the top, (the covered call), then you make a 180 turn, jump back to the marked number and pick it up. You must do this without stepping on any lines (making bad calls) or you are out and have to start all over.”
“LEAPing Lizard” from kensho52. Gotta love the play on the word “LEAPS”, which stands for Long-Term Equity AnticiPation Security, a fancy name for what is essentially a long-term options contract. (You can get up-to-speed on LEAPS by checking out my blog series on LEAPS.)
I knew you were a creative bunch! Thanks again to everyone for all the great suggestions.
Regards,
Brian Overby
TradeKing's Options Guy
www.tradeking.com
[image: Trophies by terren in Virginia on flickr]
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