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The stock fell below my LEAPS strike — can this be saved?

Your long call is out of the money, the short calls you can sell above your own strike pay almost nothing, and the calls that pay real money would lock in a loss. Here is the arithmetic, including when this one is simply over.

Options guide · 10-minute read · Updated 2026-10-30

Where you actually stand

A poor man's covered call is a long-dated call (a LEAPS) plus a short nearer-dated call sold against it, standing in for 100 shares. When the stock falls through the long call's strike, the trade stops working, for a reason worth saying out loud:

A shareholder who is down still owns something. You own a contract with an expiry date and a value heading toward zero.

Your long call is now out of the money. Its Intrinsic value is gone. What is left is time value, and time value drains. The short calls you can sell at strikes above your own long strike pay pennies, because the stock is nowhere near them. The calls that pay real money sit below your long strike — and selling those caps the trade at a worse loss than doing nothing. That is the whole squeeze.

A worked example (hypothetical)

An illustration, not a trade idea, and it is a real loss.

Made-up company Cobalt Ridge Mining trades at $50. You buy a 14-month $40 call for $14.00, so $1,400 out. Then you sell a 30-day call at the start of every month.

Five months of weak results follow.

How to read it: money still in it is the $1,400 you paid minus everything you have collected. Where you stand is the long call's value minus that. Four months of selling calls brought in $200. The long call lost $1,240.

A shareholder who bought 100 shares at $50 would be down $1,900 and would still own 100 shares with no clock on them. You are down $1,040 with ten months left and a contract that expires.

The number that decides everything

Your break-even at the long call's expiry is the strike plus what is still in the trade, per share:

$40 + $12.00 = $52.00.

The stock is at $31. It needs to rise 68% in ten months just to get you back to zero.

That is the whole question. Do you believe the stock does 68% in ten months? If the answer is no, every choice below is about how much more you are willing to risk, not about recovery.

Why selling calls below your strike makes it worse

At $31, a 30-day $40 call pays about $0.01. Nothing at or above your strike is worth selling. So the temptation is the $35 call, for about $0.30, or $30 a contract.

Here is what that $30 actually costs. With it collected, the money still in the trade is $1,170, and the ceiling becomes:

(35 − 40) × 100 − $1,170 = −$1,670.

A negative ceiling. If that call is assigned, the trade is locked at a $1,670 loss, and the most you could ever lose by just holding the long call was $1,200.

Now say the stock recovers to $45 by that short call's expiry, with nine months left on the long call, which is then worth about $8.00.

Check the middle row by hand: −$1,400 paid, +$200 collected, +$30 for the $35 call, −$4,500 to buy the shares, +$3,500 delivering them at $35, plus a long call worth $800. That is −$1,370.

That $30 of premium cost you $970 — the $1,000 of recovery between $35 and $45 that you sold away, minus the $30 you took in. And if you exercise the long call instead of buying shares, you burn its remaining time value too, which is another $300.

Choosing the LEAPS strike is the page that stops this before it starts.

Your four choices, with prices

Two details the table leaves out. Selling calls below $40 moves your break-even nowhere, but it drops your ceiling to $35 — that is what caps the row at −$1,670. And the roll down means selling the $40 call and buying a 14-month $30 call at $6.00, which is where the extra $440 goes.

Most people pick the second row, because closing feels like admitting it. That is a reasonable choice only if you would buy this long call today at today's price. If you would not, you are holding it for a reason that has nothing to do with the stock.

The fourth row is the only real repair, and it is honest about what repair means: you are adding $440 to a losing position to pull the break-even from $52.00 down to $46.40. The stock still needs about 50% from $31. More money, lower bar, same bet.

When this one is simply over

Say it plainly, because most pages will not. There is no roll, no adjustment and no amount of premium selling that fixes a long call sitting $9 below its strike with ten months left. The repairs available are:

• take the loss now and keep the remaining $160;
• hold a cheap contract as a small bet and stop selling calls under your strike;
• pay more money to move the break-even down.

That is the list. Anything that promises more than that is selling you the ceiling in exchange for a credit, and this page just showed you what the credit costs.

What matters more is the next trade. Size the long leg so that losing all of it is a loss you planned for, pick a delta of 0.75 or better, and check the ceiling before you open. The share-based covered call and the wheel strategy have no expiry pressure at all, because shares do not expire. The wider map is in option strategies beyond the wheel.

One note on accounts: multi-leg spreads need a higher options permission level than covered calls at most brokers, and in Canada running them inside a TFSA or an RRSP depends on the broker and may not be allowed — check your broker's current options agreement before planning a repair.

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