The odds are, if you’re a Grasshopper, you don’t know what a LEAP is. Not only is it important to know, but I just sold a LEAP. LEAP’s are a very good strategy and I might be doing more in the near future. So, what is a LEAP?
Long Term Equity Anticipation Security or LEAPS is a trademarked term for long-term Stock Options. LEAPS, like all options, are available in two types – Calls and Puts – A LEAP is the same as an ordinary stock option except that instead of expiring in days, weeks or months they are good for longer periods, sometimes a year or 2.
The LEAP I sold today does not go out a year but it will not expire until 1/17/20. A true LEAP goes out at least 9 months and expires the 3rd week in January. My trade today expires the 3rd week in January, but it’s only 8 months away. It’s still much longer than any trades I make so I consider it a LEAP.
I will be writing more about LEAPS soon and I’ll be adding a LEAPS page in the menu bar. There is too much information on strategy, considering Strike Price, Expiration Date, Premium, Time Value, Time Decay, Intrinsic Value and other items to include it in this post. Please watch for my “LEAPS Series” post to learn more and understand what to consider, and my strategy.
Today we can look at this trade as a normal option trade with an Expiration Date out 8 months instead of my normal 1 week.
I’ve owned 1000 shares of Advanced Micro Devices (AMD) for over a months now. I first bought 800 shares on 4/3/19 at $29.50 and another 200 shares on 4/8/19 at $28.90. I have 1000 shares at an average price of $29.39. I sold 10 contracts of the 1/17/20 $35 Call for a premium of $2.65. The premium alone is a return of 9% for a little less than an 8 month deal. Because this is a LEAP I went higher on the Strike Price. This is a very good stock so I went up to $35. If I get assigned, which I hope I do, I’ll make $5.61 on the stock sale. That’s 19% in capital gains. If I do get assigned, which will mean the stock will be above $35 in January, I will make the $5.61 on the stock sale, plus keep the $2.65 premium. This deal will give me a totalRate of Return of 28% for an 8 month deal. That would be great, and that’s what I think will happen. As I write the stock is up $2.95 today. The company just came out with a new chip which is causing a lot of excitement for the stock.
Sell to Open 10 AMD 1/17/20 $35.00 C @ $2.65 (+$2650)
I’m only locking up $28,390 with this trade. If I get assigned in January my account will be up $8260. I think this is a great trade on a very good stock so I give it a Risk Factor 1.
Watch for my LEAPS post.
Steve
The Options Coach