Home | Finance | Stock Market Investing
A LEAP (Long-term Equity Anticipation Product) is simply a long-dated option. LEAP options that don't expire upto 2 years into the future give the buyer much more time to be right about the future direction of a stock and at the same time offer tremedous leverage. LEAP option trading has become quite popular in recent years because just like all options, LEAPs only cost a fraction of what it would cost to buy shares in the underlying stock itself, but give you the same amount of control. As with all options though, time is the enemy (if you are a buyer) and over time options lose their value. So how can we use LEAPS to speculate on the future direction of a stock (UP or DOWN) and at the same time reduce our risk of losing all our money on them? Well let me share with you a couple of simple LEAP option trading strategies that have worked well for me over the years in both bull and bear markets... TIP: If you believe a stock will go UP over the next 1-2 years, then buy Call option LEAPs on it and at the same time sell the call options (at least one or two strike prices out of the money) that expire in the current month. If you believe a stock will go DOWN over the next 1-2 years, then buy Put option LEAPs on it and at the same time sell the put options (at least one or two strike prices out of the money) that expire in the current month. By doing this you will effectively be getting cash back on your investment every single month that you hold your LEAPs. Over the long-term this will not only offset the time-decay of your LEAPs, but also offer you some downside protection, should the stock go in the opposite direction that you want it to. This is known as a Calendar Spread and is a much more conservative way of speculating with LEAPs. Important: If the stock rises above your sold strike price for your current month Calls or below your sold strike price for your current month Puts, then you risk being assigned/exercised. You should never allow this to occur because the moment you are assigned you will lose whatever time value is left on your LEAPs. It is far better to close out the trade for a profit by buying back the sold option and selling your LEAPs for an overall profit or simply holding your LEAPs and then writing (out of the money) options against them for the next month.
Information and Articles: http://www.mastersmba.com
Providing Information on various topics such as Option Trading Tip - How To LEAP Into Option Profits!, please browse our other Articles for more informative resources, we house information on every topic imaginable so regardless of your needs you can be assured to find the answer here. If you wish to reprint this on your own website, simply click the "Web Version" in the right menu, and you are presented with a pre-formatted document to use.
A lot of the information is written by the Master Article team, and published exclusively on the MastersMBA.com website, and we do our best to research all information to ensure it's as accurate as possible. However at times we also publish documents given to us by other sources, we do examine these documents to ensure they are as accurate and correct as possible however at times they discuss highly specialized fields making it hard to authenticate the validity of every fact in the document. These are written by specialists in their respective fields, and we do trust their integrity and judgment however it's always a good idea when doing any research to consult a number of sources and form your own conclusion based on a number of view points. Option Trading Tip - How To LEAP Into Option Profits!
