I highly recommend using this for your long-term account, or whatever account you have with positions you plan to hold for 5+ years. If you don’t have a long-term account… GET ONE NOW.
If you are on this page it is likely you have give or take around $5,000 in your long-term account. With this kind of money it is very hard to see the gains you are wishful for. Even if you are up 50% on a position… It’ll probably only be a few 100 dollars. If you had a lot of shares for that 60% move. That $100 profit should be over $1,000
With the strategy I’m about to share you can see the 100% return on your position you want to. Which is an incredible return that shouldn’t be taken for granted no matter the account size.
LEAP Option Contracts.
The strategy is very simple I promise. All you do is buy an in the money option that is 8-12 months out in expiration. Meaning it expires in around a year.
If you are still unfamiliar with option contracts I recommend going over some of our pasts posts and wathching a few youtube videos.
Example
Take a look at the option chain for $UBER. Uber is a company that I want to own in my long-term portfolio, because I think they have a high growth business in an innovative world. But the issue is, I don’t have enough capital to buy 100 shares, which is what I want. Buying 100 shares would cost me $5,000, which I can’t shell out right now.
Instead, I will buy a call option for around $1,100. The contract still allows me to control ownership of 100 shares of stock, but for 1/5th of the price. However, only for the next 8 months.
The reason I want an in the money contract (the strike price is lower than the current share price for call options) is so my break even price is lower. The break even is the strike price + the price you paid for the contract.
Say I buy the Jan 21st 2022 call with a strike price of $45 at 10.25 (equal to $1,025). 45+10.25 is 55.25. If Ubers share price is at 55.25 at expiration, I break even profit wise.
All Uber has to do is move 10% from it’s current share price of $50.46 for me to break even. Any share price above this i’m in profit.
What Advantage Do Options Have?
Options give you opportunity to control 100 shares of stock, for a fraction of the price it would cost to actually buy 100 shares. The catch is, you only have ownership for x amount of time. The time is the risk you incur.
If you are right with your option contract, you reep all the benefits of owning 100 shares but you never had to cough up all the capital to buy the shares. If you are wrong, you lose all or most of the money you paid for the contract.
Minimize Risk With LEAP Contracts.
LEAP contracts should only take up 10-15% of your entire long-term portfolio. Over allocating you account with options, will only hurt you in the lon run.
When you have a small account it is good to take risks because your losses won’t mean much when thinking of the longer time frame of your life. Buying LEAPS can propel your account in the right direction much faster than buying straight up shares.
Pick The Right Stocks To Buy Options For
If you do want to buy LEAPS you have to do EXTRA RESEARCH PRIOR. Because if you are wrong, you will feel it hard on expiration.
The reason I like Uber is because I believe the summer will be tremendous for them. The combination of vaccine rollouts, warm weather, more things to do, and the population tired of being inside will give them a great quarter. Also, in the fall a lot of colleges are requiring studetns to get a vaccine in order to be on campus. If all students are vaccinated, that means college bars will do well. How do students get to the bar…yup you guessed it UBER!!
I’m still waiting to buy the contract for Uber because of an uncertain market right now, but it’s on my radar.
Do your due dilligence and make an educated decision for your account.
The Hidden Plus of LEAP Contracts
You buy the contract, then forget about it. Most of the time when owning an option contract. You have to be glued to the market all day long every single day. If the contract is 10 months out, the intraday market swings mean nothing. Check it and forget it!
Closing
If you’re lost or want to learn more. Message me on instagram @tj.brescia!! I also recommend watching one of my favorite youtubers explain this strategy. He is called “InTheMoney.”
The Common Trader 