What Are LEAPS in Options Trading? (How to Magnify Stock Returns)
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- Опубліковано 27 вер 2024
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Options traders mostly place trades with 30-60 days to expiration, but we are not limited to short-term trades. We can also place long-term options trades via LEAPS (Long-Term Equity Anticipation Securities).
In this video, I cover:
1) What are LEAPS in options trading?
2) What are the differences between short-term and long-term options.
3) How LEAPS can generate massive percentage gains relative to the stock price return over a period
4) Why implied volatility collapsing is not a huge concern when buying LEAPS call options.
5) Why LEAPS should be avoided on most stocks because of liquidity reasons (low open interest/volume).
I hope this video is helpful and you have a better understanding of how you can incorporate LEAPS in your portfolio, and especially if you have a strong directional prediction for a stock over the next year or so.
Be sure to leave a comment down below with any questions you may have!
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✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf
As always, let me know if you have any questions about the video.
-Chris
Hi Chris, I saw in a video where you said there was a template sheet for logging all trades made in the description section and it could be downloaded, I can't find that video, could you add a link please? cheers
ua-cam.com/video/SMXLR1UC4ug/v-deo.html
@@projectfinance Cheers Chris
Hey chris, can u make a video comparing returns and losses of at the money, out of the money and in the money options in the same expiration cycle of the same stock so we can compare which is better assuming the risk is same that is delta is same..
How much risk do u like to trade in, in terms delta.. I mean at which delta do u like to trade?. And what the realist return one can expect trading option if we trade for delta less than or equal to 0.3
My biggest problem over the years when buying options (primarily Calls) is "timing". i.e. having option expire before stock moves. By using LEAPS with high Delta (deep in the money) I've become a lot more profitable.
💸💸💸
Yes, I always buy deep in the money to make it the most profitable.
Also time decay. Options premium decay faster when they are close to expiration.
What stock do you trade usually. I want to learn
That's what Pelosi does 😂.
Deep in the money leaps.
Best channel to learn Options trading! Great job man
I appreciate that!
Hands down.
I started trading LEAPS last year. It's just so much easier not worry about the day to day while still leveraging options. Great video! I learned a bit more :)
Assuming you're bullish u do a leap call option. I'm thinking the same but long a synthetic spread with a protective put. The P/L chart will be similar to just a long leap option but cheaper. What do u think?
Synthetic spread, please elaborate @@JK-vb9ps
Hey Chris, your videos are outstanding! Clear, thorough and applicable...I'm primarily buying LEAPs now and wanted to ask 2 questions...1. Do you have a recommended profit goal for when you might sell to close LEAPs and 2. What are the pros and cons associated with buying LEAPs on leveraged ETFs? Thank you for all you do, sir!
Idea: if i'm very bullish on the longterm, buy a leap, while selling a long-term put. Use the put premium to lower cost of buying the call, and lower my break-even price. I'm sure I'm not the first person to consider this combination. lol Thx for your content.
I never sell puts because the market could move down and you get assigned. It's uncommon in American style contracts, but I have had it happen twice in the last several years. The spy is weird because it is so volatile. I would bet because of its volumes that it is actually more volatile than a lot of stocks. Of course you could buy the put and take the loss and hang on to the call in the hopes that things turn around. Then you are just straight long, and it's never easy to make a profit, especially now you need more to cover for the put. I just think there is a decent risk of early assignment on spiders. Well, gl!
In your example, the leap you purchased was deep out of the money. You then hypothetically held it until it was at the money. That seems like a pretty unrealistic scenario - more like gambling. You lost 100% of your money if the market had gone down, stayed the same, or even went higher. You only made money if you were lucky enough to buy SPY at the bottom and it moved substantially higher.
^^^ THIS.
This is the issue that options furus routinely gloss over, by showing you an "example" where everything works in your favor for most or the whole trade. Reality is different. I can tell you, being stuck "underwater" in LEAPS myself right now. It will take MONTHS for them to recover - if they ever do.
The weird thing is that my LEAPS trades worked well and just like UA-cam options furus promised. Until they didn't.
It feels like you made this video for me :D
Excellent explanation as always. Thanks!
Haha I might have. Thanks for watching/commenting as always!
Solid video Chris. Learning "LEAPS" and bounds on both channels.
Amazing haha! I’m glad to hear it. Much more to come.
I was lucky enough to buy XLE 2022 leaps right when it bottomed in mid March. So glad I did, now that the market is recovering.
is vertical spread good for leap options? example please
Explaining is one thing - as in how to do it. More important though is WHY. What is the purpose of using LEAPS - when does it work well and when is it a bad choice. For example, I know how to initiate an Iron Condor (not saying I could even do it better than anyone but I can follow step by step). Why? That is always the big moment - "Oh, so that's why it works so well!" Thanks for your help and advice.
These are my type of options! Could you do a LEAPS strategy?
I'll come up with something!
@@projectfinance 🤜🤛 champion. Thank you!
@@projectfinance Any update on this? Love your channel btw man!
I just loooooove the way you teach us! Thank you 🙏🏼
this really cleared up a lot of confusion I had about the greeks, thanks!
Hi Chris - is there a relationship between Delta and IV? I have noticed that my profit projection using delta, once the stock moves up, are much lower that the theoretical (price increase*delta) projection that i have been doing. Hence I assume IV has a lot to do with the gap. I would appreciate your thoughts
Great channel to learn options with so much detail explanations. You are doing great, I recommended your channel to all people interested to learn options.
I am a bit puzzled that why deep in the money Leap call options have very little extrinsic value. This make it much less risky strategy. Can you please comment?
I really wish this video was posted around March ending to April 1 week time frame. Good video
You’re always professional and thorough with your videos! Keep up the great work and I’m sure your portfolio is BANGIN!
Hi, where can I learn more, I don’t understand if in a “range trading market” or up and down and up and down market, how does it affect the leaps options ? This is when u are correct 100% in the direction where the market is going, at this point, we don’t even know this is a slowly climbing up, or there is more pain to gain, but for sure a year or two from now things will be cheaper than it is today ( hopefully )
Can we get a study done on the optimal trade management strategy for LEAPS? Similar to what you did for the CSP puts on SPY. This could be a MAJOR help!
Absolutely love this channel!!! Best on UA-cam hands down!!
I have some leaps on Square, the latest one reads...as of 10\14\2020
SQ 20 JAN 2023 ITM
Trade price 100.00 Bid size6 114.05 ASK size60 118.20
Delta: 91.54 Gamma0.0904
Theta-1.65015 Vega: 43.3587
Net liq.11,607.50 P\L Day -425.00
P\L Open 1,601.84
Ill give updates on how its doing as time goes on
Thanks again for the great videos.
nice work
How is it going?
If there is no interest can’t we just buy the stock (exercise) them and then sell the stock?
great video chris! It’s interesting to see how with LEAPS delta drives the change in the option price.
The time period is too far out to prevent significant theta decay. and with something like SPY as an underlying, over a long period of time, IV should average out to be fairly low as the price generally grinds up, lowering the effect of Vega decay 🤔
Thanks for watching/commenting!
Hi Chris, which strike to use, ATM, ITM or OTM?
Excellent video, thanks!
You’re welcome thanks for watching!
When buying long term options, would you recommend buying in the money or out of the money options (especially DOTMs)?
Thanks for the video. How do I know if the IV for a leap contract is high or low? I want to avoid IV crushing after I buy a leap so how would I know not to overpay due to IV?
Compare it to realised vol... for SPY you can also check the VIX chart to have an idea of how high or low is the IV compared to its past values
If you go long, it's pointless to buy IV. IV is equal on a call to the stock price minus the strike price. There's no benefit to buy an itm option, because all the IV can do is go to zero. The TV will definitely go to zero, but if the stock retraces, and your itm goes otm, how did the extra cost help you? It's a waste.
Thank you for your videos!!!! Life saving!!! You are doing good for so
many people!
That $4 Jan 22 300 call trading at $124 for a 3000% gain as of June 21
Excellent presentation, Chris. I only wish I'd seen this when you published it 18 months ago.
Hey Chris, I’m 15 and I’m trying to learn as much about finance in general as I can but more specifically options trading and value investing. Do you have any tips or suggestions of what else I should learn before I start investing for myself?
what if the open interest is high, but volume is low....Still a safe play?
Great Video. One quick question: When you go for say LEAP Call option, do you buy ATM ?
Will definitely be checking out your other channel I have learned so much from your videos... Great content thank you!
Awesome, thank you! Glad to have you as a subscriber on both channels!
what do you think of futures compared to leaps?
If I didn't know any better I'd say this is "Mike" from the tastytrade lessons. His voice is identical and the only difference is the hair :)
Yeah ... Mike is his brother ... get about same stuff on TastyTrade (he used to work there with his brother).
within the first 5 seconds, I was thinking the same thing.
By far the best options channel. Keep it up
Where can I buy leaps? Robinhood?
You are an excellent teacher. This is the 3rd option video I've watched and you are very thorough and systematic. Thank you so much for sharing this content with us. Much respect!
what about a LEAP bull call spread? How would you choose the short leg?
Thanks
The way I would do it I will check on the option Chain what is the expected move and try to get a strike around there . If you’re extremely certain it will hit or your budget allows then move the strike further OTM on the short option.
What about buying a put for long term downside. Is that a strategy with leaps as well,
Yes. A Leap is a directional move. If you think it’s going up but a long call. If you think it is going down buy a put.
Chris, good video. Just adjust the light in front that reflects on yr spectacles...
I'm working on figuring it all out! thanks for watching.
How to choose the strike price for leap? Deep in the money or out of money strike price
Great info and take-aways. Thanks, Chris!
Great video, as always you are spot on! What is the optimal moment to fix the profit?
So Thera is only subtracted from share price & not the call premium? What about delta?
Just wanted to say thanks!
You're welcome! I just spent a ton of time creating an Options Trading for Beginners PDF (170+ pages now) that includes my best explanations/visuals explaining key options trading concepts and strategies. Check it out: www.dropbox.com/scl/fi/g7d402wnapqexq344ct73/options-trading-for-beginners-aug15-v1.pdf?rlkey=dort61xyaz1rubndbwbqmhd5i&dl=0
If you want updates to the PDF over the coming months/additional learning resources, consider dropping your email on the page here: geni.us/options-trading-pdf
Very good info. Would you recommend using the debit spread for LEAPS (or even for a shorter time trade), why/why not? thx.
No. The stock has to have a major upward move beyond the short call on top. You need to fill the gap between the two strikes to make a profit.
Hey man. What about low strike prices ? I love doing that.
I was looking to some of the stocks and they have open interest about 16k 28k for the particular price that I was interested in so I'm guessing that's pretty good strike price
I have been trading short-term options and have a set of rules for entry, what indicators do you use for leaps?
Hey what is the maximum time you have held a leap call to make a decent profit? Thanks
One Question. I did bit of research on SPY ( 24 Oct 2020 - 12 Oct 2020 ) when SPY grew 10.71% up. There random LEAP options grew like these (SPY220916C350 - 31% ) ( SPY221216C350 - 60% ) ( SPY230120C350 - 63% ). Now I know the growth is 3x, 6x, 6x but in your example the growth was around 18x. We are looking at similar strike price differences, similar timeframe ( 2 year ) then why there is the difference? Please enlighten. Will appreciate your response.
Only after watching IntheMoney's explanation does your video now make sense.
Just started trading options, your videos are very clear and informative ! Thank you!
I don’t understand why the long LEAP option increased so much. I feel like this was left out. The delta on the 300 Call in March would have been tiny.
Do you have such a huge gain of 600% only when you buy existing option (being on market for a while and out of money)? Because in my experience with leaps if you buy new puts at money you would not get nearly as much.
good stuff. Don't let your leaps expire, roll them
Tell me why?
Thanks man. How can I send you some money. I really appreciate what you’re doing. Do you have a tshirt or any merch that I can buy to help you out. I’ve watched a ton of your videos
What about using LEAPS with "covered" calls? Good, bad, other?
I've used them in a "poor man's" covered call and it can work well as long as you pick your sell strike well. Just had an issue with Robinhood where my short call for PLUG was in the money and instead of selling the LEAP which was deep in the money to cover the assignment they bought back the short at a loss, so need to be careful.
Great Video! Got a quick question. Do you recommend vertical spreads on leaps in case you can't afford to buy calls for certain stocks like AMZN?
As always, thank you, thank you, thank you!
What you think about a walmart call for 125 to expire may 15th?
I buy the furthest leaps ITM calls and consider them as long term assets. Of course I also sell short term calls against it. Can you make a video about more detail in rolling the long call forward? For example, do I change the strike? Do I use the same delta? Do I always roll every year or every quarter when the new leaps comes out? Should I roll for debit or credit? More importantly, how do I compare and what standard should I use to make decision between different decisions in rolling leaps forward?
Are leaps a good store of value?
I wouldn't call them a store of value, but they are much better positions to allocate money to than short-term options. I will be allocating money to 2+ year call options in stocks that I want lots of exposure to in the future. The long call LEAPS strategy is one of my most believed-in approaches. But admittedly, I have none of these positions on right now as the market is pretty insane with the increases we've already seen over the past few months. I had many profitable long-term call positions that I've already exited for healthy profits.
What is your view on selling LEAP PUTs deep ITM? Advantages/risks vs buying LEAP CALLs?
Selling LEAP puts is the best way to blow up your account.
Thank you for this amazing video on option trading. Can anyone give guidance? I realise not many broker/ platform offers LEAPs (CMC, Oanda etc). Anyone have any good broker/ platform to recommend? Thank you
Hi, I really liked your explaining Leap options and how they magnify returns.
I was looking at a video by a channel called “James Bulltard” and he describes Leap options he recently placed on Amazon.
I’m not sure if his video is legit or if it’s not to be trusted. Would you mind taking a look at that video (his most recent one!) and let me know if it “looks good” or if you think it’s not a real trade / a suspect video.
It’s hard to know who is for real on UA-cam, but I trust you. Thanks! 🙏🏼😊 Coco
Thank you for this video.
Question: since the 2-year LEAP has so much time to expiration, is it a correct understanding that you have more time for the underlying to move in your favor. In the example with the SPY 300C 2 years out, even though we are OTM 1 month from the bottom, the option still has value. Would it be hard to sell given that it is a 2-year LEAP with low volume and open interest? If you had bought a shorter DTE options say 3 months or 6-months, it will have a higher time decay, but generally, it will have a higher reward to risk ratio given that it probably would have been cheaper than the 2-year, is that correct?
Generally speaking -- an option at the same strike and a shorter time frame will have a larger % increase given the same move. But by going to a shorter time frame, it becomes more of a gamble because you NEED to be right, and fast. And about selling the option, it wouldn't be hard, but you would have to likely sell lower than the mid-price (same with buying -- you'll usually buy higher than mid). But in SPY, the options are pretty active even that far out. There's a large enough of a market to make it happen. I wouldn't worry too much about getting in/out in liquid stocks, which is why I mentioned to only do this type of trade in popular products.
Great answer.
What is weird about TV is that there is always more on a more distant expiration, but it's not proportionate. A 2 year leap might have $6 if it's otm, but a 2 month contract might have $2 for the same otm strike. $6/24 months < $2/2 months. The time value is disproportionately front loaded, back months get cheaper because otm options demand the stock to hit a home run in the 9th. Very rare. But shorter term contracts are the same because in the last week the contract's TV takes a sudden nose dive. TV is not a linear progression where week 1 TV = any other week during the same contract. So if you are going long, you would do well to buy in the back months to save money and have the best chance to see that massive move that you will undoubtedly need.
Thank you
Can you tell me what the “300” strike represents in this example??
it represents that you are paying an upfront cost to be able to buy 100shares times the amount of contracts at 300 dollars a share by that date. however we are not going to actually buy them with this strategy we are paying the upfront cost for that right and then selling that right to someone else for more than we bought it
@@theblackdeath10 is it out ocf the boney call?
I have a question maybe you can help with. I am currently in the situation where I want to exercise call options because of the potential dividends. But I don’t have all the cash to exercise all my contracts. What’s my best option to exercise all and can I use margin in my favor to exercise contracts.. basically creating a loop
Exercise contract with cash, use stock equity margin to exercise more contracts / I’m thinking once I buy the stocks the equity also increases therefore I have more margin?
I enjoy your Videos .. much more now that i understand more lol .. at todays date 3/2/022 did you make that leap option on spy and hold till this yr ?
How would this strategy work for LEAP option way ITM, say at the .80 Delta? How would one still make money off the LEAP? Thanks!
Hi, thx for the video. Quick question: Does IV matter for LEAPS?
Thanks for watching! Technically, IV always matters. But what we observe when looking at LEAPS is that IV changes much smaller than short-term IV, meaning IV is much more stable for longer-term options. If you look at a long call LEAP from the bottom of 2020 to a few months later, you'll see the huge VIX/IV crash didn't matter for the long-term calls.
Some people will say that longer-term options have higher IV sensitivity since they have higher vega, but the thing is the longer-term IVs don't move nearly as much as short-term IVs, so the larger vega is misleading on its own.
Another great video Chris! Thanks man!
You got it! Thank you!
Options is the way to go for me thanks for explaining this 🔥
why leaps are better then synthetics (buy call sell put same strike atm)???
Central stopper
It's really a great lecture. I'm new to options trading, just wondering @8:04 you mentioned that for a 1 dollar change in the SPY price, we would get 50 dollars. Is n't it supposed to be 50 cents for 1 dollar increment in the price?
A $0.50 change in the option price means a $50 change in your P/L, since a $0.50 change in the option price really represents a $50 change in the option's premium. So I just skipped a step and said a 1 dollar change in SPY would result in a $50 change in P/L.
@@projectfinance Thank you!
Watershed video the way you explained this. Thanks
where can i get the picture or painting in background??
gold and silver coming correction, possibly 10 to 20 percent. should we close our otm gold silver leaps, and then buy them again at a lower price, or shall we hang on? Aug20
Hi, do you have a video on Roll Overs?
Chris you are the best, keep it up;)
Thank you! Will do!
Hello, would this be a useful tool to make long-term bets on stocks or other underlying securities that you believe will move substantially in your favor -but you are not sure of the time frame, it could be 6 months, 1 year, 2 years or even beyond, would you still look to make the option inexpensive by looking at OTM options with 25-40 delta for example as oppose to Deep ITM LEAPs? Thoughts?
Yes, I personally do. I think the time frame you choose is up to you. If I think the move will happen in 6-12 months, then I'd go 2 years out to give myself time. I think you can always safely go further out, even if you think the move will be a few weeks, but by going further out you'll pay a higher premium for the option (assuming same strike). But the added time is a safety net in case you're wrong.
if the option at expiration date is worth 5k and i decide to exercise it, do i lose the 5k premium ?
Good stuff and ty sir. ..What happen if I waited until the expiration date for a leap options to expire?
Depends on the underlying.
Very helpful, thank you 👍
AMAZING VIDEO.
If there are no open interest and can't close your position, is exercising the only option to close it?
That's what I thought too. Then sell the shares off in the market and you're back to square one.
how long do people usually hold LEAPS options? i can't imagine holding to expiry date right? unless they plan on excercising it to make more profit? anyone?
It depends if the stock moves favorably or not. You may hold the position however long you want to, or however long is necessary. You may not make any profits at all if the stock price does not move in the right direction. If I buy a 2-year option, I will probably close it within 1.5 years at the latest.
Great video! I have a question about strike prices. I heard somebody always suggest buying in the money leaps with delta around .8, but lets assume that I think a stock will more than double over the next 12 month - should I still focus on a .8 delta/in the money, or try to get something much cheaper out of the money, in the expectation that price and delta (via gamma) will catch up and overtake the more expensive in the money option?
Have my one year Fiverr leap cooking from the recent dip, so far so good. Out of curiosity, do you have any opinions on holding leaps during election years? Graphs seem to indicate market drops during November presidential elections.
@@Black00200 Since that post, my leap portfolio is up massively. Glad to have been holding quite a lot of EV, Solar, and tech.
Subscribed 🚀😘😘
This is so good Bro! I've been wondering about buy and hold SPY leaps for quite a while now. I have been wondering if it is a viable strategy to buy SPY CALLS as far into the future as I can, and then roll them out whenever we approach 1 year DTE. I'd love to see some historical data on that. Do you think it's a viable strategy? Anyway, awesome research and presentation as always! P.S. I'd be stoked to see a video from you regarding Poor Mans Covered Calls. Hope all is well!
I love this exact strategy. I like rolling the calls into the further out expiration cycles, or even converting the proceeds from a portion of the calls into actual shares. I could run some backtests, but honestly, it will be somewhat sketchy because historical data on LEAPS will be questionable. The spreads are also much wider and assuming a mid-price fill could lead to some misleading results.
Great videos 👏
At around 12:15, you mention "taking the options off." What does that mean? Don't you need to hold until the contract expires? How do you get out "early"?
You can sell them. Just like buying a stock and selling it later. You can sell an option that you own. You don't have to wait until expiration.
@@projectfinance sorry, I'm new to this. So, could you theoretically buy an option and then sell covered calls against it? Thank you so much for your response!
Yes, that would be a call spread (buy a call and short a call at a higher strike price).
There could be an error in your calculation. You gave the example of buying the LEAPS call at the bottom of a sharp decline in share price. But you took the premium for the 300 call as of recording the video (months later to the event) and not real time. Since we know that IV shoots up dramatically when markets are on a freefall, the premium to purchase the 300 call would've been considerably higher and therefore the ROI considerably lower than the 600% you show.
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