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LEAPS are the best way for an average investor to grow their wealth exponentially.
DO NOT buy leaps if you don’t understand these 10 concepts:
1. What is a LEAP?
A call option with at least 1 year until expiration. You're buying the right to own 100 shares at a set price. Time is the edge.
2. Intrinsic vs extrinsic value
Intrinsic = how far in the money you are. Extrinsic = the time premium you're paying. Know what you're paying for before you buy.
3. Delta
The higher the delta, the more your LEAP moves with the stock. Deep ITM = high delta, safer. OTM = low delta, more leverage, more risk.
4. Theta decay
Time decay accelerates as expiration approaches. That's why you buy 1+ year out. The further out you go, the slower the bleed.
5. IV and IV crush
High implied volatility = expensive premiums. Buying a LEAP before earnings or a major event means you're overpaying. Buy when IV is low.
6. Strike selection
Deep ITM for safety. ATM for balance. One strike OTM for asymmetry. There's no one-size-fits-all. Match the strike to your conviction.
7. Break-even price
Strike + premium paid = your break even at expiration. But you don't need to hold to expiration. Most LEAP profits are taken well before.
8. Position sizing
LEAPs are leveraged. One bad position can set you back months. Size like you could lose the entire premium. Never put more than 10% of your total portfolio in LEAPs combined.
9. When to enter
The best entries come at key support levels or oversold conditions. Not at all-time highs. Not the day before earnings. Patience on entry is half the trade.
10. When to exit
If the thesis breaks, get out. If the thesis is intact and you're winning, let it work. If expiration is approaching and you're near the money, make a plan early. Don't let a winner turn into a loss because you didn't pay attention.
LEAPs reward patience, conviction, and discipline. Without all three, they're just expensive lottery tickets.
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