The Formalized Seven-Day Rule

In their book Covered Calls and LEAPS a Wealth, Hooper and Zalewski detail how to invest in LEAPS in order to generate returns in the high single digits to low teens. They go into detail on how to manage your position in the event that it is not called out. One of the rules is to only sell a secondary call on the LEAP if the Formalized Seven-Day Rule is met. Here are the details of the Formalized Seven-Day Rule:

1. The rule is essentially the selling high rule that was discussed for covered calls - secondary call sales can only be made when a stock is in the upper 75% of its current price cycle. What this means is that you take the stock's price chart, draw upper and lower trendlines around its current channel and then divide the range into quarters. Again, you only sell secondary calls when the stock is in the upper 75% of its price. The intention of this rule is to allow the stock price to drop and allow for profitable buyback.
2. A rising price cycle must have a minimum of $1.50 of price between the upper and lower lines of its price cycle.

If the stock shoots up instead of dropping as anticipated, you may be able to profitably exit on the delta effect, buy back the call profitably due to time decay or use another advanced technique to manage the position such as the Surrogate LEAPS Replacement.

There is one exception to the rule ... on a declining cycle, only buy back the call when the stock reaches the bottom 25% of its price cycle.