Diagonal Covered Call Strategy

The Diagonal Covered Call strategy leverages both directional moves, when the stocks or ETFs within the portfolio are trending upward, and call writing to bring in weekly premium when the stocks are trading sideways.

  • The strategy buys a long LEAP call option on each of a basket of high quality stocks or ETFs that have strong fundamentals, technicals and quantitative predictors. 
  • A typical portfolio has 5 to 7 stocks or ETFs.
  • Long LEAP call options are utilized to reduce required capital, as compared to buying the stocks outright.
  • Proprietary indicators trigger when to sell short front-month calls to bring in premium, or when to pause on selling calls and to let the long LEAP call appreciate due to an up-trending stock or ETF.
  • Robust fundamental analysis identifies high quality stocks with strong fundamentals that include:
    • Sales growth
    • Earnings growth
    • Free cash flow
    • Pre-tax profit
    • Return on equity
  • The portfolio manger follows strict exit rules on both the short calls and the long LEAP call positions to limit losses.