Make Money LEAPS Trading

追加: 2026-05-26

[00:00:00]Most people trade LEAPS options wrong and that's a big problem. They treat them like lottery tickets and they lever up because they think spending less compared to buying the stock means they can buy more contracts and then they wonder why they keep getting burned. I managed close to a billion dollars in options-based strategies, 15 years as a professional market maker, which means I was literally the person setting the price for those leaps. When I show you how I trade LEAPS, it's not something I read about. It's what I did with real capital for 30 years. Understanding the vault term structure, the surface, the skew, making sure I didn't get picked off because I'd priced them too low or too high. Then I built and managed option strategies across 12 ETFs. Today I'm going to show you the right way, the art, the science of one of the great tools in markets. Of course, as always, everything here is for education only, not financial advice. Please do your own research. Consult a professional before making any trading decisions. It's your trade, your responsibility. And if you're okay with that, let's keep going.

[00:01:05]Now, this is what you might hear elsewhere. Only buy leaps when the VIX is above 15. And I've heard this repeated a few times by people who are really newer to the space. And I get the appeal. It's simple. It's memorable. But anyone who's actually traded options at an institutional level or for a very long time knows that markets can spend significant time below VIX 15. And really some of the most powerful upside moves in history have happened in precisely those low volatility environments where LEAPS calls can absolutely thrive. So the rule ignores regime, it ignores trend, it ignores option pricing dynamics, the way that options work with volatility. And that's really a massive mistake since to me the environment is really everything. The regime in 2015 or 2017 or 2001 was very different from today. So there's a lot more to it than one number. And a tool built by somebody with 30 years of in the trenches options experience is going to understand that much better than some arbitrary rule by somebody who's probably in marketing a couple of years ago. Okay, let's start with the basics.

[00:02:10]LEAP stands for long-term equity anticipation securities. They're calls or puts. That's it. With a fancy name.

[00:02:17]The only real difference from any other option is the expiration date. Typically one year or more out. That's it. Key point. When you buy a weekly or monthly option, time is your enemy. From the moment you enter, that is an issue. That option is decaying every single day. We call that theta decay. Negative theta. A leaps at 12, 15 or 18 months. Now, time starts working for you instead of against you. You give your thesis room to breathe. You can be wrong for a few months and still recover. And I know that from personal experience. I've been wrong on a bunch of leaps for a few months and I still made really good money on them. That doesn't really happen with a 30-day option. And so, I know everybody loves to trade the super short-term options. It's awfully fun turning a weekly dollar option into 20 bucks. But that really is a bit of a fool's errand over time. It's gambling and that's not really what we do in the leaps program. That's why a lot of people start to shift to LEAPS looking for the theta benefit, the the leverage and the ability to really wait for something to work out that you really believe in. So let's look at how theta meaning decay the daily cost of owning an option behaves over time. Way out at 18 months, barely anything, right? You can see that at nine months you start seeing that theta decay start to take up. At three months real daily cost becomes reality. One month father time is really starting to take money from you every single day. So that danger zone is where leaps owners get themselves in trouble. They forget to roll or close. they find themselves in a normal shortdated option after all that waiting with all that theta's disadvantages now and none of the leaps advantages which really brings me to a hard rule that I follow at 120 days remaining I close or rolled no exception so it's okay if you still believe in the thesis you can roll you can go to a more distant option you can even change the strike price you want to make sure that is still a very valid thesis you don't want to just roll for the sake of it. We don't like revenge trading. We don't like situations that turn negative and you still push in terms of being bullish. You've got to really take another look at the reality of the situation. So, this is the most important thing that I'm going to say in this video. So, leaps are not a tool for levering up. You heard me touch upon that earlier. Here's the trap. Somebody has $22,000, let's say, that they've allocated to Amazon. They discover that one LEAPS contract which cons controls the same 100 shares that they would have purchased with their $22,000. The LEAPS contract costs only $5,300.

[00:05:01]Their eyes light up and they think if I've got $22,000 to spend, why don't I just buy four of these contracts and spend all of that? So, they do. Now, they're controlling 400 shares. Very good upside. They feel very smart. Then Amazon has a completely normal 15% pullback, which that little bugger always does when you least expect it.

[00:05:23]And their options are down maybe 50 60% maybe more. All 22,000 is effectively at risk. Now that account really gets devastated. They've turned a calculated exposure into pure leverage on leverage.

[00:05:37]So imagine what that does to your emotional capital as well. And I've seen this from mentoring students. you people forget about that emotional capital and the weight that is around your neck when you start to strap on a position that really starts hurting you. That's emotional capital that you play with that gets depleted by stress and pressure. So here's the right way. Same $22,000 you buy one contract $5,300 deployed. You have the same exposure to that 100 shares of Amazon. A little bit lower reactivity in a core type position which we'll talk about in a moment. And the delta will rise as it becomes more reactive, more in the money. So the other $16,700, which is the important part of this, it is sitting in cash. If Amazon drops 15%.

[00:06:24]You're down on the position, but you have capital to buy more at a lower price. If you still like the story, if the market crashes, you're going to be the person with dry powder when everybody else is wiped out. said, "Listen, this is a market that's either going to go to the moon or is going to collapse under the weight of all this disruption and this is a great play."

[00:06:43]And sure enough, we had a real explosion in that option pricing for those who were in the program who own LEAPS. And so, think about this scenario. In the worst case, the Amazon comes down. If you're completely wrong, those LEAPS expire worthless and 5,300. you probably lose maybe just slightly a bit more than if you had owned the $22,000 worth of stock. But you'd be surprised by how much leaps can hold that value as the stock drop. Sometimes the implied volatility goes up just a little bit, not as much on those longer term ones.

[00:07:11]That relative option pricing starts to cushion a little bit. We call that implied volatility hanging in there as option prices push up. So this is really the the pro approach. You want to create the equity exposure with a fraction of the capital you would normally need for the stock. You're going to hold the rest as an option on the future in names that you really believe in. Don't force it, but when the market pulls back, when things are on sale, you're going to do a little bit more of what Warren Buffett does. You're going to add that exposure, that longer term exposure, not a one-mon option, not a two-month option. You wouldn't be able to do that if you were all in on Amazon stock and you are handcuffed. So leaps give you leverage but don't stack leverage on top of leverage. Okay. So now let's say you found the stock that you believe in. You want to buy a leap. Which one? This is where delta is going to come in handy.

[00:08:06]Delta is going to tell you two things.

[00:08:08]How much your option moves for every single dollar of stock movement and roughly number two your probability of expiring in the money. So an 80 delta is going to be an 80% chance of expiring in the money and it's also going to give you an idea that this the option is going to move about 80 cents for every dollar move in the stock. Now that can change as the stock makes bigger moves because that is not a linear relationship. But let's talk about the two kinds of leaps that you can focus on. A 75 to 80 delta. This is going to be what I would call more a stock replacement and that refers very directly to the Amazon example we just talked about. At this delta 75 to 80, the leaps behaves very similarly to owning the stock itself. The intrinsic value is doing a ton of the work, right?

[00:08:57]So the intrinsic value is the difference between where the stock's trading and that in the money strike that you own.

[00:09:04]That means you're less vulnerable to a collapse and implied volatility. This is a trade that you make when you really love the company. You've maybe had a little bit of a pullback, a nice spot on the chart on the longer term weekly chart. You have a 12 to 24month thesis now and you want to sleep at night, right? So, this is the kind of stock where some people ask me, Hans, there's more at risk here compared to the next kind of leap that I tell you. Yes, but this can be more resilient and I'll tell you why. So, the other trade is the leaps explosion. So my scanner gives you both of those in the hot list. 35 to 40 delta. Now that's going to vary based on the days to expiration that you're using, but 35 to 40 is a good spot there to pick. 20 25 delta that tends to be super out of the money uh and a little bit more for those massive potential moves which could happen. So this is going to be an out of the money leap as compared to the 75 or 80 delta. lower cost, real leverage, but you really need a decent move for it to work and perhaps just a little bit more quickly uh a move as well. So that's something I call wing compression risk that we really have to keep in mind. If the momentum stalls on a name that you're playing at this delta, those out of the money calls can really get hit even without a big sell-off in the stock. That's where you really want to make sure that implied volatility is not trading at the high end of the range. At the very highest mid and the first third range of the range over the last couple years would be really good. So this is going to be a smaller size type trade. Maybe 2 to 3% of capital the way that I like to do it versus say 4% for a core position.

[00:10:45]Remember that's the higher delta position that we're putting in a little bit more capital but it's going to be that more dependable resilient position.

[00:10:54]This explosion trade is one that I may add once momentum gets really going once that horse is galloping away from the starting gate. This trade is going to make a little bit more sense. Someone once made the argument that selling cover calls on Square could beat any dividend strategy. They said, "You don't need dividend strategies anymore. Let's just do this. This is my new way of generating in generating income." And the income looks great on paper, right?

[00:11:18]You look at any of these income ETFs, you look at the yields they post on the front page and there are very good compelling reasons. What happened?

[00:11:25]Square fell 70% from those levels. Those were frothy years. That cover call premium that they've been collecting that was a rounding error against a 70% draw down in the underlying, right? It looks like a bond and it's a bond kind of proxy but with a lot of risk. 3% per month is not going to help you much when the underlying stock loses most of its value. The stock selection was risky. It was a 400 times price toearnings multiple. No stock comes with a guarantee. So, don't get me wrong, there were good quality stocks that came down, but they're also making all-time highs on a regular basis right now. You have to understand what you're getting into.

[00:12:03]This is not about guarantees. It's about making better decisions. So, you're making life a little bit more difficult with a crazy high-flying stock like that. my largest positions, the bulk of my portfolio, the quality cash flow, return on invested income, strong secular themes, all those details that sometimes make people's eyes glaze over, those are very important. And with leaps, leverage is going to make that error even more painful than it would have been if you just own the stock, right? And especially if you're levering up. So you don't just lose, you're going to lose faster and you're going to get yourself into more trouble if you start to layer in.

[00:12:38]So before anything else, I asked would I own this business for at least two years? Is this company going to be standing in 18 to 24 months? Is the macro working with it right now?

[00:12:47]Critically in this age of disruption, is its competitive moat getting wider? Is it drying up? Is it becoming a puddle?

[00:12:54]You can take software for example, I've been saying on every show I've done all year long that it's almost uninvestable in many cases. And it's really been a very big minefield for investors this year. So companies with moes very important very important for you to start to make better decisions. Quality is really one of the best management tools you have. It is making the right decision. It's almost playing defense as part of your offense. Right? You do the work first and you're going to appreciate that later. So let's talk about one of the things that trips up people who think they know what they're doing.

[00:13:30]The poor man's cover call. So your long a leaps. you sell shorterd dated calls against it, you are collecting nice premium, right? That sounds elegant, right? I have people reach out to me all the time. Are you doing income layers?

[00:13:43]Income layers is all they can think about. You're getting all this juicy income in the short term as you hold those leaps for the long term. It's the best of both worlds, right? You get upside, you get income. It's a free lunch, right? Except people do this without running the math first. And here's the number that you need before you sell a single call against your leaps. technical break even on that LEAP is the strike price plus the premium you paid. So if I bought the Amazon 190 LEAP for 40 bucks, my technical break even is $ 230, right? 190 is the strike. I paid $40 for it. $40 plus 190 is 230. I need Amazon technically above 230 by expiration for this trade to actually be profitable at expiry. That's my line in the sand. And it's a very simple rule to follow. Don't sell shorter term calls at a strike below your break even unless you can manage that position in real time. You don't know what to do. You start getting paralyzed like a deer in the headlights. My break even is 230 and I look at selling the Amazon August 210 call for eight bucks. $8 feels great, right? But if Amazon runs to 240, I'm effectively called away at 218.

[00:14:55]That's below my 230 break even. I've agreed to sell at a loss effectively.

[00:15:00]I've turned a bullish thesis. Think about this. I've now turned a bullish thesis into an expensive put, right? The leaps plus that short call which eventually means you got to sell stock.

[00:15:12]If you let it play out, that's basically you've turned it into a synthetic put.

[00:15:16]And I see these people do this quite a bit after entering a leech. They buy it, they immediately start selling calls to reduce that cost basis. And if you do it wrong, you're strangling your own position before it's even had a chance to work. So think about that just in in a conceptual way. You've done all this work. You found a great company at a great price. You've immediately handicapped yourself by selling your upside away almost immediately. I'm not This isn't saying I know exactly where the stock is going, but understand what you're doing. Are you bullish or are you not? Are you you've gone through the work. You found the company. You found the leaps. The leaps have low theta decay. They're they're well positioned if you've picked them properly. And it it it's just it's something that comes to me again and again from students, from mentoring students who say, "Listen, I need help here. I feel like I'm doing the right thing, but it feels like I'm just gambling and I'm getting myself into trouble." And this is very important stuff. You want to have as many layers of edge as possible. And a great tool is going to help you build that. The point is, you're in risk markets to take some risk. You did your homework. So, okay, the right version.

[00:16:21]same leaps, same 230 break even, but I sell the August 240 calls for 425. So, if Amazon hits 250, I'm called away at 240 above my break even. I've made money on the leap. I get that extra $4.25 above the 240 and I've kept the premium.

[00:16:38]The math works here. The strike plus the premium, that's your number. and doing anything else requires, I'm not saying it's wrong, it requires a different kind of management focus that a lot of people are willing to do, but it has to be very disciplined. So again, leaps are a powerful tool. They give you time to be right. They give you time to be wrong before you're right. That's the product. That's what you paid for when you bought 18 months of runway. Let it happen. Now, under 120 days, you start losing those advantages. decay accelerates, flexibility shrinks, the value of being long diminishes, right?

[00:17:16]You're losing one of the few things that you can control in markets. In Leafs trader, I say, "Listen, I really like this stock and I like this position, but the problem is it's starting to run out of runway." And that's a problem. We need to roll, close, take the win, or roll into another position. So, my hard rule again, 120 days, I close or roll.

[00:17:37]No exceptions. Even at a loss if I have to, I can always push into uh a new position. This is what institutional traders do when the imminent move is uncertain. You don't wait for the clock to run out. You protect that capital and you reset. So, mistake number four, catching a falling knife. If a strock is dropping hard and you keep buying calls because you're certain it's about to recover, what's your edge? Right? You're betting the market wrong. You're betting little old me, I'm bigger than the market. Wait for the bottom. Let it stabilize. Give me that 3 or 4 days of upward momentum. It might take a few weeks to get that, but get on the horse when it's already riding in your direction, right? Remember, markets are wonderful. You get to bet on the car race after it's already started and bet on one of the top three cars mid-ra.

[00:18:24]That's amazing, right? We get to take advantage of that. We don't have to bet on the last place car. In my experience, I've had more success that way that rather than betting on the car with the flat tire. So, everyone loves a comeback story, but that's not really where the money is. Mistake number five, ignoring option pricing. So, on the stock, not on the VIX, right? So, I'm not talking about the VIX here. Understand that VIX measures 30-day implied volatility S&P 500. It tells you almost nothing about what an 18-month leaps is on a semiconductor name. And that's a problem, right? Those are completely different instruments. Comparing them is like checking the temperature in Miami to decide what to wear in Oslo. You have to look at that specific stock's IV percentile and rank against its 12-month history. You got to use a tool like a bar chart. It's going to show you this clearly. You have to look at that specific stock's option pricing, a rank over the last 12 months or last two years. A tool like bar chart is going to really help you see something like this clearly. It gives you the e each of the different teners, the different expireies. you might want to blend some versions of that option pricing and in that low quartortile of pricing, you want to play around with that and figure out where it makes sense to get into this particular LEAP option because if you're not right and you don't pick carefully and everybody knows this, buying options into an earnings event and you get a positive move and you're like, why did my calls not go up?

[00:19:51]They've jammed up the implied volatility in there. So you can still lose money if you pay too high in IV and you don't get an absolutely massive move. So you really want to make sure that's part of your toolkit. Now the quality of the stock, the sense for the move that's happening, I would say outranks an implied volatility that's a little bit on the high on the higher than low side. Right? I wouldn't want to pay the absolute highest, but remember the move is gonna the delta from that long position in the leap is going to make up for a lot of other problems. So, if you have an inkling that a stock is really moving, and we've seen that lately, right? Things like Micron where the option pricing is high, but guess what?

[00:20:34]It's pricing a sort of generational regime shift out there that's happening because of AI and these stocks just keep going. Let's look at what this looks like in practice with an example.

[00:20:46]Netflix dominant company, one of my favorites. Nice cash flow, a lot of competition, but I think AI is going to help with their cost. They're getting more into live. They're doing all kinds of great stuff. So, I still really like it. Really nice kind of downturn. A bit of almost a defensive play. Beautiful company. Cost of Leap. Let's look out here. We're going to go to June 2027.

[00:21:07]Roughly 14 months of runway. I find the 72 call. That's in the money. That carries around an 80 delta, 78, 79 delta. That's stock replacement territory, right? So, this going to start to act quite a bit like stock. The cost $25 a contract. So, $2,500 for a total 100 shares of exposure in effect, right? One contract is equal to 100 shares of exposure. So, compare that to the $8,900 that it would cost me to buy Netflix outright. 100 shares times the price of the stock, $89, $8,900. So I'm only putting in 28% of the capital and I'm able to keep 72% of it as dry powder. Now my break even at expiry, remember we want to do the math. It's 97. Now that's going to be different. We have a big long period of time here where it's we're not necessarily waiting till expiry on this position, but we do want to do the math.

[00:22:02]I'm not planning to hold this to expiry and it's against the rules. But if Netflix moves strongly in the next few weeks or months, I may even take profits before then. I mean, it doesn't we don't know. That's the beauty of having 14 months of runway. You're not forced into anything. You get to wait for the right move. You can wait for a good move and even a pullback if you really feel that there's going to be a continuation because I'm a big believer that really making the most of your strongest positions is something that's important to performance over time. It's difficult to get anywhere if you're not really pressing on those good ones. Check the bid ass spread, the open interest. Work the order with leaps. You usually get wider spreads with leaps. You're going to go in at the market and you're going to get the worst price. So market orders are very difficult, right? You're not going to get that best fill. Come in between the bid and the ass. Sometimes mid-market, adjust 25 to 50 cents every 30 seconds on a quietish day until you get filled. Market orders can really be trouble on a leaps position. Why pay more if you don't have to? The good news is the big companies, the popular ones to trade are going to have much better liquidity. The liquidity in Leaps has actually gotten quite a bit better in the last couple years. So that's good news. So when do I add income? One, the position is up. I have a profit cushion. I've already made money. I can afford to give up some of that upside without compromising the core trade. If I'm a bit more of a trader, I want to look at movement, but I definitely don't want to sell into a massive breakout. But after we've had a good move, you can do that.

[00:23:36]I did that on Dell recently. It moved 50, 70 bucks, something like that, and then I started to sell. I love the stock. I wasn't going to cap it off right away. I wanted to let the stock do some of the work for me. The scanner tells me when the income layer makes sense, so that's when I apply it. Two, the stock's implied volatility is elevated. So check that range on the chart. If the premium's treat cheap, why would it give up upside for almost nothing, right? If that short-term premium, that income premium is cheap, it's not compelling, right? It's not compelling. Three, the chart looks toppy. Okay, I love charting. I think technicals are one of the greatest things to look at. Maybe my stretch indicator is getting a little too stretched right now. I see that on Costco. Actually, the market may be getting a little bit extended. Maybe I want to play that a little bit, right?

[00:24:23]I'm a little bit more active in my portfolio as opposed to somebody who just kind of sets it and forgets it and waits for very opportunistic moments.

[00:24:30]Maybe I'd like to trade throughout the week. The Leap Scanner is going to have an incredible tool that helps you find income trades, tells you when there's actual edge. So, look at Netflix right here. It's in that sweet zone showing Microsoft really sitting nicely there in the income zone. Sweet zone showing yellow. So, for Netflix, it we're applying income a little bit more cautiously. We want to have that full green. We do have some some that are green. NOC and DAK and DAQ rather. There are a few names in there that are a little bit more compelling on the income side. But remember, you're in risk markets to take advantage of moves, to take advantage of taking risk on stories and great companies that you believe in.

[00:25:13]I remember somebody telling me a long time ago, they said, "Don't trade for the sake of trading." A seasoned trader actually just reached out to me last week and said, "Listen, I'm I have great experience, but I'm tired of trading out of boredom. I need a better approach. I feel like I'm gambling." Right? So, if you're in that position, you might want to consider a different way to do things. If you really feel like, I'm just flapping in the wind like a flag. I don't know which way things are going. I feel like I'm making some progress. It's two steps forward, two steps back. I don't think feel like I'm getting everywhere. You need better tools. So, let me show you some of the ones that we've done really well. There's so many more. There's dozens of them, but Robin Hood, I built a thesis. It was trading around 35 retail brokerage, strong wealth transfer outlook, getting added to major indices, really undervalued relative to where I thought it was going. Strong, strong tailwinds behind it. Big wealth transfer. That was one of the big things for me. So, I bought deep in the money leaps calls. And then I did something most traders can't do. I did nothing. No calls sold against it. no partial exits. I did a video on this at one point. I let the thesis develop. The stock went from 35 to over $100. The leaps appreciated by 70 or more per share and I started to do some layered income trades. I collected I think on a $100 move in the stock I actually made more than the $100. That's incredibly difficult to do when you're doing income. But that's what happens. And it doesn't happen every time, but that's what happens when you get the thesis, you size it, and you get out of your own way, right? Dell has been a really be a nice nice beautiful one lately. Nebius another famous one that we had to really go well as well. So everything I walked you through the thesis filter, the quality filter, the data selection, delta selection, the stock IV check, the 120D rule, the conditions for income.

[00:27:00]The Leaps income scanner does all of that automatically. It scans for setups.

[00:27:04]There's nothing like this in the world.

[00:27:05]And there's certainly there will be imitators, but there's nothing like this from somebody who's actually done this for a living. This is my brain pushed into these tools that I love to make. I make tools that I want to use, not rubbish that is rehashed crap from YouTube or wherever. There is just so much bad stuff out there. And I'm not saying this is any guarantee. Don't sign up for something like this thinking there's some sort of magic bullet. The magic is in process approaches, understanding the environment, having the great guidance, classes, live classes every week. This is not leaving you to your own devices. There's a portfolio. You watch my portfolio. I tell you everything I'm doing. This is what the proper program is all about.

[00:27:48]So, it's exciting. This thing scans for setups, quality stocks, micro tailwinds, option pricing. It looks for flows. It looks for many nuances in the V space. V metrics that I used as a market maker.

[00:28:00]Running 800 million in options income funds as well. all kinds of different inputs that I feel are very important to finding those great trades. And of course, my market temperature indicator baked into that. So, you're avoiding selling calls into a meltup with all these and the stretch indicator as well.

[00:28:17]So, amazing stuff. I want you guys to check it out. I'll put the link up here.

[00:28:21]The link is also in the description below. This is great stuff. So, thank you for watching today. Again, it's not financial advice, but if you want to check out some of these amazing things that I've created, by all means, write down below. And don't forget to subscribe and hit that little alarm bell down there so you don't miss any of the good stuff. And we shall see you guys soon.