Long Call LEAPS (Long-Term Equity Anticipation Securities) – The Option Strategy Desk Reference

Long Call LEAPS

(Long-Term Equity Anticipation Securities)

Strategy: Buy n Calls 1+ Year Expiry

Example:

Price Chart: Uptrending

Current IV%: 20%

IV Rank: 30

Trade: Buy one or more ATM or slightly OTM call options that expire in 12 or more months.

Typical Strike Delta: 0.55

Goals: Buy long-term call options on an underlying security that is trending upward. Long options can be purchased for a fraction of the stock price. The return on investment is typically substantially better than a similar trade made on the underlying stock or ETF, even when the security pays a dividend.

Manage: If the long call has returned an acceptable profit and before Theta begins to erode the premium value of the long call options, close them for profit. If deep ITM, determine if exercising the option (receiving the intrinsic value less the remaining extrinsic value) is more profitable than simply selling the long call options for the current premium value. The long call can also be used to cover a series of short OTM call options for additional premium income, which is a common practice.

Profit: Close when this trade returns a profit of 50 percent or more.

Loss: Close this trade if the price of the underlying reverses direction as a result of poor earnings or an unexpected corporate or financial sector event and the premium initially paid approaches a 10 percent reduction in value.