This LEAPS Strategy Made Me $119,649 (3 Simple Steps For Beginners)

In this video titled “This LEAPS Strategy Made Me $119,649 (3 Simple Steps For Beginners)” by Options with Davis, you’ll learn about a powerful trading strategy that has helped beginners make significant profits in options trading. The video focuses on the LEAPS strategy, which involves trading long-term options to capture unlimited upside potential profits. The speaker shares their live trading positions and profit/loss statements to provide real-life examples. Additionally, the video mentions other related videos that viewers may find interesting, including ones on generating income through credit spreads, iron condors, and the wheel strategy. The goal is to have a well-rounded options portfolio with different strategies for different market scenarios, and this video specifically discusses a bullish strategy using call LEAPS.

Understanding the LEAPS Strategy

What is the LEAPS Strategy?

The LEAPS Strategy, short for Long-Term Equity Anticipation Securities, is a trading strategy that involves using long-term options contracts to capture significant profits in options trading. LEAPS are options contracts with expiration dates ranging from one to three years, allowing traders to have a longer time horizon to profit from the underlying asset’s price movements.

Advantages of the LEAPS Strategy

The LEAPS Strategy offers several advantages for options traders:

1. Extended Time Horizon: LEAPS provide traders with a longer timeframe to capture potential price movements in the underlying asset. This longer expiration date allows for more flexibility in managing positions and reduces the potential for short-term market fluctuations to negatively impact the trade.

2. Leverage: Similar to other options contracts, LEAPS offer traders the opportunity to control a larger position with a smaller amount of capital. This leverage can amplify potential returns compared to buying the underlying asset outright.

3. Limited Risk: The maximum risk in a LEAPS trade is limited to the premium paid for the options contract. This limited risk makes LEAPS an attractive strategy for traders who want to participate in the market’s potential upside while managing their downside risk.

4. Versatility: LEAPS can be used for various trading strategies, including bullish, bearish, and neutral strategies. Traders can choose the appropriate strategy based on their market outlook and risk tolerance.

Benefits for Beginners

The LEAPS Strategy offers several benefits for beginners in options trading:

1. Longer Learning Curve: As a beginner, it is crucial to have time to learn and understand the complexities of options trading. The extended expiration date of LEAPS contracts provides beginners with a longer learning curve, allowing them to gain experience and confidence in their trading decisions.

2. Reduced Time Pressure: Short-term options contracts can be challenging for beginners, as they require quick decision-making and close monitoring of market movements. LEAPS provide beginners with a more relaxed trading environment, allowing them to make better-informed decisions without the time pressure.

3. Lower Capital Requirements: LEAPS can be a cost-effective way for beginners to participate in the options market. The lower upfront capital requirement compared to buying the underlying asset outright allows beginners to enter trades with smaller positions while still benefiting from the potential upside potential.

Components of an Options Portfolio

Bullish Strategies

A well-rounded options portfolio should consist of various strategies that cater to different market scenarios. Bullish strategies are designed to profit from upward price movements in the underlying asset. They are suitable when the trader expects the market or a specific stock to rise in value. Some popular bullish strategies include:

1. Call Options: Buying call options allows traders to profit from an increase in the price of the underlying asset. Call options give the holder the right, but not the obligation, to buy the underlying asset at a predetermined price (the strike price) within a specific period (until the options’ expiration date).

2. Bull Call Spreads: Bull call spreads involve buying a call option at a lower strike price and simultaneously selling a call option at a higher strike price. This strategy allows traders to reduce the upfront cost of the trade while still benefiting from the upward price movement of the underlying asset.

Bearish Strategies

In contrast to bullish strategies, bearish strategies aim to profit from downward price movements in the underlying asset. These strategies are suitable when the trader expects the market or a specific stock to decline in value. Common bearish strategies include:

1. Put Options: Buying put options allows traders to profit from a decrease in the price of the underlying asset. Put options give the holder the right, but not the obligation, to sell the underlying asset at a predetermined price (the strike price) within a specific period (until the options’ expiration date).

2. Bear Put Spreads: Bear put spreads involve buying a put option at a higher strike price and simultaneously selling a put option at a lower strike price. This strategy allows traders to reduce the upfront cost of the trade while still benefiting from the downward price movement of the underlying asset.

Neutral Strategies

Neutral strategies are designed to profit from little to no movement in the underlying asset’s price. These strategies are suitable when the trader expects the market or a specific stock to remain within a certain range. Popular neutral strategies include:

1. Long Straddle: A long straddle involves buying both a call option and a put option with the same strike price and expiration date. This strategy profits if the underlying asset’s price moves significantly in either direction, regardless of the direction.

2. Iron Condor: An iron condor combines a bear call spread and a bull put spread by selling out-of-the-money call and put options and simultaneously buying further out-of-the-money call and put options. The goal is to profit from low volatility and the underlying asset’s price staying within a specific range.

By incorporating bullish, bearish, and neutral strategies into their options portfolio, traders can diversify their risk and take advantage of various market conditions.

Unlimited Upside Potential with LEAPS Strategy

How LEAPS Strategy Captures Unlimited Upside Potential

The LEAPS Strategy allows traders to capture unlimited upside potential through long-term options contracts. Since LEAPS have longer expiration dates, traders have the opportunity to benefit from significant price movements in the underlying asset over an extended period. This extended timeframe enables traders to capture the full potential of the market’s upward momentum.

When using LEAPS for a bullish strategy, such as buying call options, traders can participate in the long-term upward movement of the underlying asset. If the underlying asset experiences considerable price appreciation, the value of the call options will increase, allowing traders to profit from the unlimited upside potential.

Example of Profits from LEAPS Strategy

To illustrate how the LEAPS Strategy can generate significant profits, consider the following example:

Suppose a trader believes that a particular stock, ABC Inc., will experience substantial price growth over the next two years. Instead of buying the stock outright, the trader decides to implement a bullish LEAPS strategy by purchasing call options with a two-year expiration.

The trader buys 10 call options on ABC Inc. with a strike price of $100 and a premium of $5 per option. Each option contract represents 100 shares of the underlying stock. Therefore, the total cost of the options position is $5,000 ($5 premium * 100 shares * 10 contracts).

Over the next two years, ABC Inc. exceeds the trader’s expectations and climbs to $150 per share. The call options now have an intrinsic value of $50 per option ($150 stock price – $100 strike price). Since each contract represents 100 shares, the total unrealized profit on the options position is $45,000 ($50 intrinsic value * 100 shares * 10 contracts).

In this example, the LEAPS Strategy allowed the trader to capture a significant profit of $45,000, representing a 900% return on investment ($45,000 profit / $5,000 initial cost).

This example highlights the unlimited upside potential offered by the LEAPS Strategy when correctly implemented.

Live Trading Positions and Profit/Loss Statements

Demonstration of the LEAPS Strategy

In the video, Options with Davis provides a demonstration of his live trading positions and profit/loss statements using the LEAPS Strategy. By showcasing real trades and their outcomes, viewers can gain insight into the potential profitability of the strategy.

During the demonstration, Davis explains the specific steps he follows to select the right underlying stocks or ETFs, choose the appropriate options with longer expiration dates (DTE), and higher deltas. He emphasizes the importance of stock selection and highlights the criteria he uses to identify fundamentally good stocks or positive drift index ETFs.

The demonstration also showcases the process of entering a LEAPS trade, including placing the options trade on the chosen underlying asset. Davis walks viewers through the decision-making process and shows how he manages the trade throughout its duration.

Analyzing Real-Time Trade Results

To further enhance viewers’ understanding of the LEAPS Strategy, Options with Davis analyzes real-time trade results. By reviewing actual trades and their outcomes, viewers can gain valuable insights into the profitability potential and risk management techniques associated with the strategy.

Davis provides a detailed analysis of different trade scenarios, including those with favorable outcomes and those with less desirable results. He explains the factors influencing the profitability of each trade and the adjustments he makes based on market conditions.

By examining the profit and loss statements of actual trades, viewers can learn from both the successes and challenges of implementing the LEAPS Strategy. This analysis provides a practical perspective on how the strategy can be applied in real-world trading situations.

Six-Figure Profits with LEAPS Strategy

Success Story of the Speaker

Options with Davis shares his success story using the LEAPS Strategy. He highlights how the strategy has helped him generate six-figure profits in his options trading journey. By sharing his personal experience, Davis inspires viewers and demonstrates the potential profitability of the LEAPS Strategy.

Davis explains that his success is a result of consistently following the strategy’s principles and guidelines. He emphasizes the importance of stock selection, choosing the right options, and effectively managing positions. Through his success story, Davis encourages viewers to believe in the potential of the strategy and emphasizes the importance of disciplined trading practices.

Overview of the Profit Generation

Davis provides an overview of how the LEAPS Strategy generates profits. He explains that the strategy’s profitability stems from capturing the long-term upside potential of the underlying asset through long-term options contracts. By choosing the right stocks or ETFs, selecting options with longer expiration dates and higher deltas, and effectively managing positions, traders can maximize their profit potential.

The speaker highlights that LEAPS provide leverage, allowing traders to control larger positions with a smaller amount of capital. This leverage, combined with the extended time horizon, enables traders to achieve higher returns compared to buying stocks outright.

Davis emphasizes that the LEAPS Strategy requires dedication, discipline, and continuous learning. He encourages viewers to develop their knowledge and skills in options trading to fully unlock the profit-generating potential of the LEAPS Strategy.

Related Videos for Further Learning

Other Recommended Videos

In addition to the LEAPS Strategy video, Options with Davis mentions several other recommended videos that viewers may find interesting and informative:

1. Generating Income with Credit Spreads: This video explores credit spreads, a popular options strategy for generating income. Davis explains the concept, mechanics, and potential profitability of credit spreads.

2. Consistent Income with the Iron Condor: The iron condor strategy is another income-generating options strategy. Davis discusses the setup, management, and profit potential of iron condors.

3. Recurring Profits with the Wheel Strategy: The wheel strategy, also known as the “Income Grid” wheel strategy, aims to generate regular profits. Davis provides insights into how this strategy works and its potential returns.

By watching these related videos, viewers can expand their knowledge in options trading, explore different strategies, and find additional opportunities for profit generation.

Expanding Knowledge in Options Trading

Options with Davis acknowledges the importance of continuous learning and suggests that viewers continually seek knowledge and information beyond the presented video content. He encourages viewers to explore other educational resources, such as books, articles, and online courses, to further enhance their understanding of options trading.

By expanding their knowledge, traders can develop a well-rounded skill set and gain the confidence to navigate various market conditions successfully.

Income Generation Strategies

Credit Spreads

Credit spreads are options trading strategies that aim to generate income by selling option contracts. The two primary types of credit spreads are the bull put spread and the bear call spread. Both strategies involve selling an option with a higher strike price and simultaneously buying an option with a lower strike price.

In a bull put spread, the trader sells a put option with a higher strike price and buys a put option with a lower strike price. This strategy is suitable when the trader expects the underlying asset’s price to remain above the sold put option’s strike price.

In a bear call spread, the trader sells a call option with a lower strike price and buys a call option with a higher strike price. This strategy is suitable when the trader expects the underlying asset’s price to remain below the sold call option’s strike price.

Credit spreads generate income by collecting the premium from selling the option contracts. The risk is limited to the difference between the strike prices minus the premium collected. Traders can adjust their credit spread positions to manage risk and potentially increase profits.

Iron Condors

The iron condor strategy is another income-generating options strategy that combines a bear call spread and a bull put spread. It involves selling out-of-the-money call and put options simultaneously while buying further out-of-the-money call and put options. This strategy aims to profit from low volatility and the underlying asset’s price staying within a specific range.

By constructing an iron condor, traders collect premiums from selling the options contracts. The premium received represents the potential profit. However, the risk is limited to the difference between the strike prices of the spreads minus the premium collected.

Traders can adjust iron condor positions by rolling the options contracts, closing the trades before expiration, or making strategic changes based on changing market conditions.

The Wheel Strategy

The wheel strategy, also known as the “Income Grid” wheel strategy, is an options trading strategy aimed at generating recurring profits. It involves a combination of selling cash-secured puts and covered calls on an underlying asset.

Traders start by selling cash-secured puts on a stock they are willing to own if the put option is exercised. If the put option is exercised, the trader will acquire the stock at the strike price minus the premium received. If the put option expires worthless, the trader keeps the premium.

If the trader is assigned the stock, they can then sell covered calls against the stock. This involves selling call options on the stock that the trader owns, collecting premiums for the options contracts. If the stock’s price reaches or exceeds the call option’s strike price, the stock may be called away, and the trader realizes a profit from the stock’s appreciation and the premiums collected.

The wheel strategy allows traders to generate income from the premium received on the options contracts while potentially profiting from stock appreciation.

Understanding LEAPS as a Long-Term Vehicle

Long-Term Option Trading

LEAPS, as long-term options contracts, provide traders with an opportunity for long-term option trading. Unlike traditional short-term options, LEAPS have expiration dates that can range from one to three years.

Long-term option trading offers several advantages. Traders have more time to capture potential price movements in the underlying asset, reducing the impact of short-term volatility. The extended expiration date also allows for more flexibility in managing positions, rolling contracts, and adjusting strategies based on changing market conditions.

Additionally, long-term option trading can be valuable for investors looking to participate in the long-term growth of a particular stock or the overall market. Instead of purchasing shares outright, traders can leverage the potential returns of the underlying asset through long-term options contracts like LEAPS.

Benefits of Long-Dated LEAPS

Long-dated LEAPS, with expiration dates of two to three years, provide specific advantages for options traders:

1. Extended Time Horizon: Long-dated LEAPS offer an extended time horizon, allowing traders to capture potential price movements in the underlying asset over a more extended period. Traders have more time to be right about the market’s direction and benefit from long-term trends.

2. Greater Leverage Potential: With longer expiration dates, long-dated LEAPS provide traders with increased leverage potential. By controlling a larger position with a smaller amount of capital, traders can amplify potential returns compared to buying the underlying asset outright.

3. Reduced Time Decay Impact: Time decay, or the erosion of an option’s value as it approaches expiration, is less pronounced in long-dated LEAPS compared to shorter-term options. This reduced time decay can be advantageous for traders holding positions for an extended period.

4. Enhanced Risk Management: Long-dated LEAPS offer traders greater flexibility in managing risk. Traders have more time to adjust and adapt their strategies based on changing market conditions or unexpected events, potentially reducing the impact of adverse market movements.

For traders looking to take advantage of long-term trends or participate in the growth of specific stocks, long-dated LEAPS can be a valuable tool in their options trading toolkit.

Building a Well-Rounded Options Portfolio

Diversifying Strategies for Market Scenarios

To build a well-rounded options portfolio, traders should consider diversifying their strategies to align with different market scenarios. By incorporating a variety of strategies, traders can navigate various market conditions and maximize their potential for profits.

For a well-rounded options portfolio, traders should include bullish, bearish, and neutral strategies. Bullish strategies, such as buying call options or implementing bull call spreads, allow traders to profit from upward price movements. Bearish strategies, like buying put options or using bear put spreads, enable traders to profit from downward price movements. Neutral strategies, such as long straddles or iron condors, can generate income from limited price movements or low volatility.

By diversifying strategies, traders can adapt to different market environments and reduce the risk associated with relying solely on one type of strategy. This diversification allows for increased potential for profitability regardless of the market’s direction.

Choosing the Right Options

When building a well-rounded options portfolio, selecting the right options is crucial for success. Several factors should be considered:

1. Strike Price: The strike price determines the price at which the option can be exercised. Traders should choose strike prices that align with their market outlook and desired risk-reward profile. Strike prices closer to the current market price are considered near-the-money options, while those further away are out-of-the-money options.

2. Expiration Date: The expiration date determines the timeframe during which the option can be exercised. Traders should choose expiration dates that align with their investment horizon and outlook on the underlying asset. Shorter-term options are suitable for traders looking for quick profits, while longer-term options, such as LEAPS, are ideal for traders with a more extended time horizon.

3. Implied Volatility: Implied volatility reflects the market’s expectation of future price volatility. Traders should assess implied volatility levels and choose options with premiums that align with their risk tolerance and profit expectations. Higher implied volatility generally leads to higher option premiums.

4. Risk Management: Traders should always consider risk management when selecting options. This includes understanding the potential loss and the risk-reward ratio of the chosen options. Traders should assess their risk tolerance and adjust their position sizes accordingly.

By carefully selecting options that align with their market outlook and risk tolerance, traders can optimize their options portfolio’s performance and increase their chances of profitability.

Conclusion

In conclusion, understanding and implementing the LEAPS Strategy can provide significant profits for beginners and seasoned options traders alike. The strategy’s long-term focus and potential for unlimited upside make it an attractive option for capturing market trends and maximizing profits.

By diversifying their options portfolio with bullish, bearish, and neutral strategies, traders can adapt to various market conditions and reduce risk. Incorporating income generation strategies like credit spreads, iron condors, and the wheel strategy further enhances the profitability potential.

Furthermore, long-dated LEAPS serve as a powerful long-term trading vehicle, offering extended time horizons, greater leverage potential, and reduced time decay impact.

To build a well-rounded options portfolio, traders should carefully select strategies and options that align with their market outlook, risk tolerance, and investment goals. Continuous learning and analysis of real-time trade results are essential for refining and improving trading strategies.

Ultimately, the LEAPS Strategy provides beginners and experienced traders with a comprehensive approach to options trading, offering the potential for significant profits and long-term success. With the right knowledge, discipline, and dedication, anyone can apply the LEAPS Strategy to their options trading journey and achieve their financial goals.