How you recapture the upside that covered calls give away — and why this is the one component you need to manage carefully.
Covered calls generate income, but they cap your gains above the strike price. In a strong rally, you collect your premium but miss the move higher. That is the trade-off you accept every week. LEAPS Calls exist to solve that problem — they deliver leveraged exposure to upside moves in SPY, restoring the gains the covered call structure caps.
A 10% move in SPY might produce a 30–50% move in a well-positioned CALL LEAP. That asymmetry is what makes the allocation worthwhile at just 10–15% of the portfolio.
You buy long-dated call options on SPY with a strike approximately 10% above the current price (out-of-the-money). The target expiry is 3 years. Like the PUTs, the long duration limits time decay and gives the market room to move in your favour.
The 2:1 ratio is a structural rule: always 2 CALL LEAPS for every 1 PUT LEAP. This keeps the portfolio biased toward growth while ensuring meaningful downside insurance is always in place. It reflects the system’s fundamental assumption — markets trend upward over time, so you want more exposure to the upside than the downside.
CALL LEAPS are the only component in the portfolio that does not have a natural hedge. SPY shares have SPY LEAPS PUTS protecting them. Covered calls are bounded by the premium received. SPY LEAPS PUTS gain value in the exact scenario they are designed for. But CALL LEAPS are naked leverage — when SPY falls, they fall harder.
That is why the system has two safeguards specifically for this component:
The 2:1 Ratio. It ensures CALL LEAPS never grow to an outsized portion of the portfolio relative to PUTs. The growth bias is intentional, but it is kept in check. MAX 15%
The Defensive Posture Rule. If SPY closes below its 30-week moving average for two consecutive weeks, you CAN halve the CALL LEAPS allocation.The system automatically reduces the one component that can hurt you most in a sustained downturn. You re-add once SPY closes above the 30-week SMA for two consecutive weeks.
Unlike PUTs which only have a time trigger, CALL LEAPS have three:
Time trigger: Roll at 1 year remaining. Re-enter 10% OTM, furthest available expiry.
Profit trigger: If the position reaches 100% profit, close and re-enter. This locks in gains and resets the leverage rather than letting the position become too large relative to the portfolio.
30-week SMA trigger: Two consecutive weekly closes below the SMA means halve the position. Two consecutive closes back above means restore it. ( This can be discretionary)
| Strike | 10% above current SPY price (OTM) |
| Target Expiry | 3 years (2-year minimum) |
| Allocation | 10–16% of portfolio |
| Ratio | 2 CALL LEAPS : 1 PUT LEAP |
| Roll Trigger | 1 year remaining OR 100% profit |
| Defensive Trigger | 2 consecutive closes below 30-week SMA → halve |
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