Hi Advanced Traders!
Because of the bullish nature of the overall markets, you can consider opening up LEAPS options. However, I still want to proceed with caution and to use the cash we generated from the stock market (BCS, CC, and dividends) over the past three months to purchase the LEAPS. This way, we are risking capital that the markets gave us, rather than using our own, to reinvest into a higher-risk leveraged security.
Currently, I am personally eyeing LEAPS for AAPL and NKE.
AAPL:
Current Price of AAPL: $174.87
Expiration Date: June 21, 2024
Strike: $130
Premium: $6345
If you are already overweight in AAPL shares or have some LEAPS that have not yet turned green, I would not really recommend purchasing anymore AAPL LEAPS at this time as you may be too overallocated into this particular underlying stock. I would personally wait until some of your shares are either called away from covered calls or sell previous LEAPS options once they turn green, and reallocate the free capital to purchasing new AAPL LEAPS.
NKE:
Current Price of NKE: $133.70
Expiration Date: January 19, 2024
Strike: $100
Premium: $4540
If you don't feel comfortable buying a NKE LEAPS because of the dramatic drop over the past several weeks, it's no problem. Some people may feel more comfortable buying LEAPS when they see more higher highs and lows, which is a strategy you can use too.
All in all, make sure that if you decide to purchase LEAPS options, that you slowly do so. I don't want to hear anyone buying 30 LEAPS options all at once. If you feel comfortable, you can start off by buying 1 LEAPS option. Or if you want to take a more observational approach, you can buy 1 LEAPS option in a paper trading account.
If you are trading a LEAPS option, you can consider selling it when it gains 5-10% (or around $250-500) in profit. If you have the intention of investing in a LEAPS option, you can consider selling it a couple of days before the next earnings date or hold onto them for around two quarters, if they are green.
Lastly, please remember that LEAPS are leveraged securities and have theta decay and magnified movements both up and down. If you are not able to stomach the volatility, you can always consider just purchasing a couple of shares out right. When you buy shares, remember that they don't have any theta decay.
In the end, feel free to tweak the numbers around for your LEAPS to your own risk-tolerance and see if you are comfortable with this strategy.
Covering Your Bear Call Spreads
Okay folks. I also want to have a quick discussion here about covering your shares when setting up spreads. I had a handful of some people say that they didn't cover themselves this past month, which resulted in some losses from the big rally this past week. Please remember that if you don't cover yourself and your underlying surpasses your strike price, you are obligated to deliver shares to the other party at that agreed upon strike price or have a realized loss from the difference between the market and strike price on the day of expiration. I totally understand that we were making easy money with bear call spreads over the past couple of months. However, the market is shifting and we always want to prepare for these moves by understanding the contingencies with our trading.
If you made this mistake, it's okay. Sometimes in life, we learn lessons the hard way. And trust me, I made all of these mistakes myself, which is why many of you understand why I take a more conservative approach to trading and investing; I simply don't want you to make the same mistakes too.
Don't let greed whisper into your ear. Greed is a quiet voice and it's important that we stay vigilant. 👌
Stay positive and have a wonderful weekend! You got this!😀
-Steve and the Call to Leap Team
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