Transcription
This is going to be the most important video you ever watch on LEAPS call options and how to trade them successfully. In fact, I've made hundreds of thousands utilizing this exact strategy. And I actually charge thousands of dollars in my private mastermind, Options Trading University, for the information you're about to see right now. And all I ask in return from you is giving this video a thumbs up and taking out a pen and paper or a notepad to take notes because this is going to be a long master class on exactly how I trade leaps call options successfully in the stock market. So let's go ahead and jump into it.
Remember this is not financial advice. I'm just sharing what I'm personally doing for educational purposes only. Results may vary. Now if you take a look at the account, okay, this is the size of account I'm trading with. If you want to follow along my journey to hit eight figures, then please hit that subscribe button down below and again give a thumbs up if you enjoy this video or you get any value out of it. Um, I'm going to go into my realized gain loss so you could see just this current year I'm up almost 300K. Obviously results vary year to year, month to month. Um, but part of this strategy, okay, part of this in this um, premium that I've collected right here was from Leaps Call Options. Okay, so I'm going to show you step by step exactly how I do it. Also, if you do want my free trade ideas, that'll be on my Instagram or my free newsletter down below. I also do have a private mastermind that hey, if you get value out of this and you want to get further help and work directly with me and 340 other high-level traders in this group, that'll also be at the top of the description below where you could watch this free training and even watch some of our client testimonials that I post on a weekly basis. Okay, but let's go ahead and jump into it.
How to win with LEAPS call options. I'm even going to show you some back testing to prove that this strategy works if done correctly. Okay, so LEAPS are long-term equity anticipation securities. Basically, you're buying call options that expire in 365 days or more. Now, why do I go so far out in time? Why don't I just buy a call option that expires in 30 days? Well, yes, it's cheaper, but those call options have very low probabilities of being right. Now, when I give myself more time to be right, these trades usually work out, even if the trade goes against me. So, that's the difference. It's like, hey, if I made the wrong call on this, totally fine. I'm just going to wait for the stock to recover, rebound, and be um in profit on my LEAPS call options. And I'll show you how I select specific stocks as well. And because not all stocks meet the criteria for LEAPS call options. Okay? In fact, probably 99 95% of stocks out there do not meet the criteria for LEAPS call options. So let's get into it.
What are the pros? The pros of LEAPS call options, they're capital efficient. So you get to control a 100 shares, but you don't have to buy a 100 shares. So, usually, you know, 100 shares, for instance, if you wanted to buy a 100 shares of Apple at $200, right? That's going to be $20,000. But you could trade Leap's call options. I could trade Leap's call options on Apple for a third of the price to control the same amount of shares. So, you get leverage exposure with the money that you trade with. Okay? So capital efficiency um almost one for one moves with the shares higher returns on capital and I'll show you in back testing to prove that less theta decay because of the long-dated expiration. So what that means is basically in these options every day that goes by because we purchase these options they are decaying in value. So that's the bad part about purchasing options. I typically sell options. I'm at 90% of my portfolio is selling cash secured puts and doing the wheel strategy which I talk about on my channel. But for 10% of the account, I do buy options. I do buy call options that have theta decay which works against me every day that goes by. So you have to be directionally right with these options. So that's just something to keep in mind. Okay. But it is a pro that we go far out in time and we have less theta decay. the shorter options, 30 days out, 60 days out, 90 days out, they expire way faster. Okay? Um, they decay way faster. So, the cool part gives you the right to buy the shares at the strike price you choose. So, let's just say I'm buying a call option. Apple's at 200. I buy the 180 call option, 180 strike price. That gives me the right to buy the stock at $180 if I choose to do so by expiration. But we won't get into that because that's not part of my strategy. I do not hold these until expiration. I close them out well before expiration.
Cons, you're paying a premium for time. So, you're paying for these options. Time works against you as you get closer to expiration. That's what I talked about a little earlier. This is also a leveraged product. So, drawdowns feel uncomfortable. You're controlling a 100 shares per contract. So, if you're someone who has a smaller account, let's just say 50,000 or less. Okay? Now, if you have 50,000 or more, maybe you're going to be more used to those drawdowns. But, uh, if you have 50,000 or less, and then you're going and buying five contracts, which is 500 shares of, let's just say, an Apple, an Amazon, uh, a Robin Hood, right? That's, you know, that's a lot of shares you're controlling. So, you're going to see the swings as if you own 500 shares. Okay. Um, so this is how it looks. Let's just say we buy a call option here. Okay, let's just say um we buy the $100 call option. Okay, we pay 20 bucks for it or 200 bucks, 2,000 bucks rather. The stock has to get to 120 by expiration for us to break even. Okay, so it's basically the strike price plus the premium paid is your break-even point by expiration. But that doesn't matter because we're not going to hold these till expiration. Okay. So, break-evens don't really I don't really pay attention to that too much because I don't ever hold these till expiration. And that's how I trade them and how you're specifically going to learn in this master class how to trade them.
So, let's go ahead and go to Tasty Trade. We're going to go to the um their backtesting tool. All right. We're going to use Robin Hood as an example because I'm actually in a live trade right now as we're going into this weekend. By the time you see this video, maybe I'm already out of this trade, but as I'm filming this video, I'm in a live trade that I'm holding into the weekend. So, it's Friday right now, and I'm trading a Leaps call option on Robin Hood. So, I could show you exactly how it's performing as I own it right now. So, we're going to go ahead and trade Robin Hood past 12 months from September 4th, 2024 to now, September 4th, 2025. We're just going to buy a leaps call option 70 delta, which means for every dollar Hood goes up, you're going to make 70 cents on these, right? So 70 delta is a typical delta that I select as far as strike price. And then I'm going to go 365 days out. Typically, I go out 400 days plus. I like a lot of room to be right. Okay, ample amounts. If we we encountered a black swan event or a bare market of some sort, it wouldn't matter because I have so much time on my hands that I'll just own it like synthetic stock. So that's why I also go out very far. We're going to buy one every day when the VIX is above 15. If you don't know what the VIX is, we'll talk about that because that's actually one of the rules that I implement. VIX has to be above 15. And we'll run the backtest. Okay. So if I were to have bought and held 100 shares, okay, of Robin Hood, I would have a return on capital for the past year of 438%. Quite amazing, right? According to the backtesting tool, very amazing. But if I were to have bought and held a leaps call option, which would have been costed me a third of the capital, right? So it would have been more capital efficient. I would have made 1,172% on my money, right? So you have the leverage factor, you have the capital efficiency, but you do have bigger drawdowns. Okay? Because this is a leveraged product. So drawdown max drawdown was 65%. In order to make that 1,172%. I had to stomach a 65% drawdown in value on my options. Okay? Versus if I held the stock max drawdown was 47%. Okay, so just something to keep in mind. Yes, the returns are higher but the max drawdowns are also higher. Okay, so let's go back to um the slides.
Now the first thing we need to set up technical indicators for LEAPS call options. Number one is Bollinger bands. This measures volatility using a moving average with upper and lower bands. The goal is to buy the stock when it's at or near the lower Bollinger band, the oversold area. And there is an exception for higher beta stocks. So like uh higher flyers like faster, more volatile stocks like Palantir and Robin Hood, those are high beta. They have a beta over two. Meaning uh for every 1% the NASDAQ goes up, these stocks tend to go up 2 to 3%. Versus, and even on the downside, if NASDAQ's down 1%, these stocks are typically down 2 to 3%. Okay. Um, the entry could be at the mid Bollinger band on those stocks as well. Okay. So, let's go ahead and go to the chart. All right. And we're going to go ahead and put in these Bollinger bands. As you can see, these two lines, these are two standard deviations away from the average price. Meaning, 95% of the time, the stock is going to stay in between these bands, as you could see. And every time it crosses below, okay, like back here, it tends to suck back in. Every time it crosses above, it tends to suck back in. Okay? So, as you can see right here, crossed above, sucked back in. Went above a little bit right here, sucked back in, went to the lower right here, and went back in. So, that gives you kind of buy and sell points. All right? And I love it because it's a it's a statistical indicator, which I love statistics, and that's just makes it easier for me. So, we're going to go to indicators, and you're just going to type in Bollinger bands. And I'm here on TradingView, which is a free software. Um, and then you'll, you know, press Bollinger bands and that'll pull up the bands for you. Okay, so that's the first one you need.
The second one you need is the RSI, relative strength index. Okay, this is a momentum indicator that measures speed and change of price movements. 30 is 30 is oversold, ideal for entry, and 70 is overbought. Avoid entry. Okay, look for an RSI at 40 or below. All right. So, if we go to the chart again, you're going to see this indicator right here. This is the RSI. As you can see, we are going towards oversold, which is this bottom line on Robin Hood. If it was at this upper line, as you can see, it crosses this upper line. That is that means it's way overbought. And you don't want to enter on those areas like here o above the upper Bollinger band, overbought on the RSI, and look what happened. It crashed. Same thing back here, right? it was uh near the upper Bollinger band or near the upper Bollinger band above it almost overbought on the RSI and then it pulled back. So you just want to be careful in those areas. Same with back here right above the upper Bollinger band above this oversold overbought RSI line and then boom crashed. Okay, so right now is actually a good time because it's at the oversold area. Every time it's below the lower Bollinger band oversold right tends to go back up. Same back here, right? Oversold, oversold, went back up. So, same thing right now. You know, we're going towards that oversold. I actually bought a leaps call option right here. Okay? And we'll look at my portfolio. I bought one right here because it breached this lower Bollinger band and was near the oversold. It's at 44 on the RSI, which is close to that 40 level. All right.
And the third technical indicator is going to be the MACD, moving average convergence divergence. This tracks trend direction and momentum consists of two lines, the MACD and the signal line. And the entry signal is when the MACD line crosses above the signal line. And I'll show you on the chart. So again, this right here is the MACD. You'll just go to indicators and just type in MACD and that'll pull pull up this and you'll just press go and that will pull up on the chart. So as you can see right here, all right, this blue line is below the orange line, the signal line. Okay. So, when this blue line crosses above the orange line, like back here for instance, right? Blue line crossed above the orange line. That's when the stock went up, right? It went up and it continued to go up. Um, same with right here. All right. So, this is a lagging indicator. So, this isn't going to tell you exactly when to get in, but it gives you an idea of anticipating when to get in. So for me, I could see that this blue line is kind of basing out. These two little uh red bars are light colored. So it looks like the blue line wants to start going up and then eventually cross that orange line. So right now would be a good anticipatory move to hey everything's lining up. Bollinger bands, we crossed the lower ones, so it's a good time to buy. RSI is going to towards oversold and the MACD is already extended downwards and looks like it wants to go back up. So, this would be a good time um to buy Robin Hood. Okay, so uh that's exactly how I utilize the technical indicators, but I want to go into the exact rules on when to get into these leaps call options.
So number one, I don't have on here because I forgot to add it to the the slides, but the VIX must be above 15. So if we take a look at the VIX, this is the fear and volatility index of the S&P 500. We don't want to enter when the VIX is below 15 because that means there's massive greed and confidence in the markets. But any little piece of bad news can cause a spike in in fear like this or like this or like this and the market will go down. Like if you look at this spike, okay, right here, February 14th, we were at 14 on the VIX, okay? And look what happened February 14th, right? We were right here. That was the top before the tariff crash and then the VIX spiked. Okay? Okay. And then the VIX went to 60, which was a record that we haven't seen in a few years. So, right now, technically, because the VIX is above 15, this would be an okay entry. But if we were in the 14s, 13s, 12s, definitely not. Okay, that is not a good entry. You want because when you get into these LEAPS call options, you have to be directionally right. So, if the overall market goes down, your stock is going to go down, right? So we don't we want the market to be in a good area where there's a little bit of fear but not too much greed or confidence to where it's like shifting into greed and confidence and then we want the market to drift higher to push our stock higher as well. Okay. So that is going to be the very first one is the VIX. All right.
Now let's go back to it. Stock selection. All right. Must be an upward trending stock with strong fundamentals. Ideally a PE ratio below 100. and look for a consistent uptrend on the past year to year and a half. I look at a year and a half. So, if we go to Robin Hood and we go back a year and a half to 2024, okay, and we just draw a line from here to here, you could see that we are much higher than we previously were. Okay? So, I'm going to draw, you know, just this is literally what I do. I'll just draw a line from here, 2024, and then I'll draw it to where we're at now. As long as that line is upward trending, great. Looks good, right? I'll give you an example of a stock that's downward trending for the past uh year and a half, which is Lululemon. Okay, Lululemon. You know, lots of people wear Lululemon, but it's in a competitive space. If I go from 2024, okay, right here, and I draw to where the stock is now, that is downward trending. You don't want to be buying leaps call options on stocks like that because if the stock goes down, right, it's most likely not going to come back up versus Robin Hood. We know that when the stock goes down, it's most likely going to recover. Okay, so that's how this stock meets the criteria. PE ratio is 51, so it's definitely below 100, meaning it's not too expensive of a stock, right? People are paying 50 times earnings, but they're not paying 500 times earnings or even paying for no earnings, right? Like stocks like uh Coreweave, right? And I'll show you like a stock like this Coreweave, which is a newer stock. It was all the hype back here, but the stock doesn't earn anything. They they have negative earnings, negative 35 PE ratio, meaning they don't earn anything. And this stock has just consistently gone down in the past couple months, right? Even though the market has gone up. Okay? So, we have to be careful with the stock selection. That is going to be number one alongside the VIX rule. Okay? So, that's going to be stock selection.
Now, we have a good stock. We're looking at Robin Hood. That's going to be our ideal company to trade, right? And I love trading leaps on Robin Hood. It's very predictable. Um, entry rules. So, enter when the stock is at or near the lower Bollinger band. And as you can see, Robin Hood breached this lower Bollinger band right here. I'll delete this little drawing, but as you can see, it breached it today and I entered. In fact, let's take a look at the portfolio. And remember, this is not financial advice. I'm just sharing what I'm personally doing for educational purposes only. Results may vary. But if we look at my trades right here, now don't mind these puts. These are cash secured puts, which are a bullish trade because I sold these and I'm collecting premium. But I bought seven LEAPS call options that expire in 497 days at the 85 strike and I'm already up 7%. Now, mind you, I bought these when the stock was at um 97. It went to 101 at the close and now after hours because they just got added to the S&P 500 today. They are up 5% in the after hours. So I'm probably going to be up 30 to 40% on these by Monday. Okay. So I'm already up in a winning trade that I entered today and I have 497 days left to be right. So I'm going to show you exactly how I exit these as well. So let's go ahead and go back. Now we entered perfect timing, right? Broke the lower Bollinger band. RSI was near 40. The MACD looks like it's flattening out. Wants to go back up. Perfect timing, right? Um, now what are the exit rules?
So, I typically trade these for icing on the cake. I don't trade these as a main strategy in the portfolio. The reason being is because there's so much risk with buying options. So you have to be timing it perfectly. You can't be, you know, incorrect versus the cash secured puts are very, very easy. You could be wrong directionally and still win on the trade. But these you have to be right directionally. So you have to be careful with these. So the exit rules I take quick profits. If I exit um, you know, in 7 days or less, if I'm up 10 to 20%, boom, take my profit. 20%. That's most most people don't even get those returns in a year. like a passive investor in the S&P 500 is getting 10% returns and if I make that in a week, I'm not going to get greedy. I will take the 10% or 20% gain in 7 days or less, right? Which I'm probably going to do on Monday on these hood puts. Um, but I'm probably going to be up somewhere near 30 40%. Right? Uh, swing profit target is in four weeks or less. So, in a month or less, if I'm up 20 to 40% on my money, I'm going to take the profit. Okay? I'm not trying to hold these forever because they, you know, the market could tank, the market could, you know, downturn. And I've seen it happen over and over where, you know, the stock will go like this. Okay, tomorrow or Monday, it's going to be somewhere up here. I might be up 40% right right here. Now, most people will just want to hold and they'll say, "Oh, well, you know, it's going to keep going up." And that's great. I'm glad that you're enthusiastic about the market and this particular stock. I am, too. But most of the time, because I've traded for so long, I know that stocks are, you know, they rotate, right? Some people will take profits here and the stock will come back down. So, basically, you're up 40%. I would be up 40% in a couple days or a week or a month, right? And then because I'm like, "Oh, I want to hold for longer," the stock starts going down. And now I see that P&L going from 40% up to now 28% and then 18% and 15%, right? Because stocks go like this, okay? They don't just go straight up. So that's why I take quicker profits because, you know, I'll exit right here and then I'll just wait for this to happen and I'll get back in right here and I'll wait for the next pop to go right there. So, I played it twice instead of just playing it once and now I have to wait a whole month to get my 40% again when I could have played it twice and gotten maybe 60 or 80%. Right? So, that's why I play these so fast, but I give myself ample amount of room to be right just in case there's a black swan event. Okay?
Now, if you're holding for longer, okay, let's just say in four weeks or less, you're only up like, I don't know, 18%. Or maybe you're down. That's totally fine. That's why I bought time on these. Okay? So, you can close. All you have to remember is you have time to be right. The stock will rebound. And hey, if you went out 497 days like me and you're now a year and a half in and the stock still hasn't performed, right, just make sure to close position 90 days before expiration to avoid rapid time decay and salvage any premium that you can out of those options. Okay, so that's the downside risk. Like for instance, you know, I had a lot of, you know, I had a couple clients before they met me or before they joined Options Trading University, um, they were in AMD. Okay. And they were buying LEAPS call options a year out. All right. Back here, all right, on AMD because there was a nice dip. They were buying right here 2024 at the beginning and all the way until now, right? They hadn't made anything because the stock is not, you know, it's not a good because they held too long. They didn't get out here or they didn't get out here. They wanted to hold for longer because they thought it was going to all-time highs up here, right? They thought it was going here, but it went down. So, you know, you have time to get out. And if in this instance, you held from here all the way to here, you'd probably be down like, I don't know, 50% on those. So, you might as well salvage whatever time decay, whatever premium that's still in those options and then just reallocate to something new. Okay, that's a worst-case scenario if the stock you selected met all the criteria and then something happened with that stock, but it's very rare that that happens. AMD was one that um wasn't on my approved list because if you were getting in right here, but you look the past year and a half, it was kind of downward trending as well. I know this was during the bare market, but the PE ratio was kind of high. Um, yeah, so that's just an instance there. Okay.
So, why if you hold longer, you're protecting capital in case of a market crash or black swan event. But that 90-day mark, if the stock goes down within 90 days, right, within 90 days of expiration, you're not going to have enough time for the stock to recover. That's why I say 90 days, close out, salvage whatever you can. But let's just say you're past that four-week mark and now you're up, I don't know, 50%, 60%. Really, it's going to be up to you to determine what type of gain you want to get out of that. I would say, hey, if you're at I've had clients at 100% gain, and I said, hey, 100%, take your money, run with it, cuz that's that's a huge gain, right? So, um, I would say anything past 100%. You're holding on to it too long and you're probably better off just closing that trade.
I hope you enjoyed this master class for LEAPS options. I don't think I've ever done one on the channel like this. But if you enjoyed it, please give it a thumbs up and I'll see you in the next video. I'm going to link another video on the wheel strategy right here. This is my main bread and butter strategy. Check this one out and I'll see you in the next one. Take care.