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What are LEAPS? ( Long Term Options Trading Strategy) - YouTube
Channel: Theta Strike
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welcome back guys today's video is going
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to be focused on
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leaps now leaps are not anything exotic
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uh we're going to try our best to kind
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of simplify the
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the concept and help you make better
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decisions
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and of course make money so let's get
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started leaps
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stand for long-term equity anticipation
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securities
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pretty much it's a fancy way of saying
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you're buying a long-term call option or
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a long-term put option
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i prefer to play this as a long-term
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call option
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because as you guys you know are aware
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of the last 10 15 20 30 40 years
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the markets tend to go up more than they
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go down yes we have dips
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we just saw one in march but we've
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already recovered and passed it
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especially for the tech sector a leap is
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something that has an expiration of
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about one year or higher so usually
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you see a lot of people even saying a
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six month is a leap which it really
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isn't
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if you look at the curve for for theta
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burn
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it pretty much starts at 90 days so you
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could you could technically say past 90
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days is okay
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but for one year i think you'll get
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pretty decent amount of open interest
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and actually a higher delta as well
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with with the less theta burn speaking
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of delta
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we're looking for a delta of over 80
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right so
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which means is you're going to be deep
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in the money and we'll look at some
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examples
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shortly but this pretty much means that
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for example if you have one spy contract
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and spy goes up one dollar you know from
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from 350 to 351
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your option is going to move 80 cents
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for every dollar that it moves up
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so with that being said you know your
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option may cost you
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probably a hundred bucks compared to one
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spy
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stock is about 350 right or shares 350.
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so that 80 over that you know 100
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is going to be is going to be a lot
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higher than that
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over that spy contract so it gives you
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the opportunity to leverage
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and get a better return rather than just
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holding uh stock over time
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and that of course comes back to a lot
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the next point right it's favorable to
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holding securities
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the one the one reason people don't like
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you know playing with options
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is because of the risk of theta which is
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the depreciation risk
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if you buy an option today and we'll see
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in the next example
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the longer you hold it the less valuable
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it becomes no matter
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you know if the price stays the same
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with leaps
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that that deterioration of the
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depreciation is a lot lower it's a lot
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less and doesn't affect as much
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especially if you have the trend on your
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side because a delta
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is going to be overcoming any effects of
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theta and of course it can be used as a
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pure play like we just talked about or
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hedging
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if you have a a long term bullish
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portfolio
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you can hedge you know for some puts if
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you're expecting any downturns coming up
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and that can actually kind of offset any
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losses you may have a long-term
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portfolio
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sell those puts at the bottom and then
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of course take that profit and right up
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again with more security so
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you know you could always play with
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things like that it's a little bit more
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advanced but of course we can definitely
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get it done
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so long term versus short term and for
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this we're going to use an example
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uh for apple and you know we can we can
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go through all of these in details
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but i mean the focus will be on the
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stock and the two years and we see the
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difference between the two if you were
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to buy apple stock today or
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last friday it would have been about 117
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dollars
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it would have cost you eleven thousand
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seven hundred bucks
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right for a hundred shares because each
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contract and option is 100 shares
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if you buy the same contract two years
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out it's going to cost you 4 300 bucks
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so think about that you're controlling
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100 shares
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for apple whether you buy stock or you
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buy a two-year
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contract and you are going to make a lot
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more money with that
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with that two-year option now let me
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tell you why the thing is right here is
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debt is delta
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right so you're gonna get a one-to-one
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ratio so if if this goes up
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a hundred bucks you're going to make one
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dollar or a hundred dollars
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if apple goes up a hundred bucks you're
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going to make 82
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off of your investment of 43.35 so
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you're you're gonna make a lot more
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over a lot less risk and of course you
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have theta issues here as well
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let's talk about the theta on the
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shorter term ones two weeks
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look how much theater you're losing
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you're losing eleven dollars a day
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if the stock just sits at where it's at
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at 117
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and that's why you know buying a two
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week call option put option yes you have
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the opportunity to make a lot of money
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but they're very very risky guys because
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of this theta burn
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and of course if you go below your
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strike price then the delta turns the
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opposite way
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and it hurts you as well two months out
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yes you're on the higher end of that
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curve for theta
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potato burn and so you're losing less
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data every day
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and you're making more delta but then
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the price has to appreciate
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again if the price comes down you're
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going to lose 50
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per 100 you lose on that stock you don't
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want that to happen
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that's not the right way to go and of
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course with two years out theta
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is almost a non-issue because you have
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so much time on your side
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it's not burning as much as time goes on
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let's look at some dollar values this
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you know takes into account if
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apple goes from 130 to 400 bucks
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of course if you have a stock you're
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gonna make eleven percent if it goes to
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130 and
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you know today it almost got there but
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if it goes to 400
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the max you're going to make is 242
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i personally think apple can get to 400
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bucks in the next two years
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i really think it can do that in the
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next two weeks
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not a chance in the next two months not
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a chance but in the next two years like
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i said
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that's a pretty good possibility so if
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you can invest
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forty three hundred dollars and make
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twenty two thousand dollars
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why wouldn't you do that i think that
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that's the that's the uh
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that's the leverage portion right you're
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investing a little bit less
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yes you have more time on your side so
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you may be holding this for a few months
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but look at that opportunity if it gets
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to 400 bucks in the next two years
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you're going to cash in at 523 percent
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guys that is unheard of that is the
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safest
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way to get to a long-term successful
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strategy and this is with just you know
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4 300 bucks
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if you can put in 10 000 in there or
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let's say 12 000 and get three of these
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you're looking at a 66 000 return in
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within the next two years
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or when output hits 400 whichever comes
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first
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and you can see it doesn't have to touch
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you know the 400 level at
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every level past 140 because that's
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that's going to be a break even
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you're going to be outperforming the
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stock itself at
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every single level right seventy percent
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for the stock
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143 for the two year average 183 for the
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stock
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14 000. and look at look at the look at
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the compounding the incremental increase
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as the prices go up because the delta is
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going to be on your side the higher it
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goes
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the more one-to-one ratio you're going
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to get on your premium
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and you're gonna make a lot more money a
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lot quicker
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so just because it's a two-year contract
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doesn't mean you're holding for two
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years
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you're probably going to hold for about
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six to seven months
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let's talk about a really quick example
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so here we have the queues
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so we have the queues at 170 and of
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course this was the tip of the downturn
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and on september 1st it hit about 300
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points
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right so that's a 72 increase what if
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you had bought a
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2021 call option right for about one
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year out
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well how much how much would you have
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made if you suggest
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oh you probably make 120 130 150
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you are wrong you would have made about
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1293
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by purchasing january 15 2021 contracts
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at the 200 strike level guys this is no
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joke
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you could see the chart moves exactly
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the same way
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we see the moving averages converge
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you'll get in you know
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of course it's tip to tip from here to
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here it may be a little bit less
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only eight nine hundred percent of
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twelve 1200 give me a break but you
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could see
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the leverage is real especially if
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you're coming down from a downturn
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right we're projecting a little bit of
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chaos
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for the elections if the market does dip
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after it touches the all-time high which
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i think is going to do i think it's
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going to go past the all-time high
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before the mark before the election time
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period
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after that it may drop guys it may
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the spy may come back to 300 uh the
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queues may come back down to that 175
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100
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or 200 level if they do
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we're going to be ready for that long
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term you know
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leap options because when the market
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recovers again
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here's our chance to make thirteen
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hundred
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percent just a little math for you guys
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just as to home just homework
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taking take ten thousand dollars in in
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times of by twelve point nine five
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and that's the opportunity i'm showing
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you right now that you can achieve
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after the next market downturn when
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everything is selling off
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we're going to be strong we're going to
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be brave and we're going to get in at
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the right spot
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follow us on discord we'll show you when
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to get in we'll help you to get out
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and of course like always we're going to
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make money together
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thank you for watching have a wonderful
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day
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