LEAPS are longer-term options.
Let's get started First, choose a stock. You should use exactly the same process you would use if purchasing the stock.
Is it going to be bullish and bring about an immediate rally? Is it going to be bearish and pull the bottom out from underneath prices? What is that answer you ask? Short term options.
Now, you need to pick your strike price. A general rule of thumb to use while running this strategy is to look for a delta of. Remember, a delta of.
If delta is. The deeper in-the-money you go, the more expensive your option will be.
But the benefit long- term and short- term option that it will also have a higher delta. And the higher your delta, the more your option will behave as a stock substitute.
The caveat You must keep in mind that even long-term options have an expiration date. If the stock shoots skyward the day after your option expires, it does you no good.
Furthermore, as expiration approaches, options lose their value at an accelerating rate. So pick your time frame carefully.
There are basically two different interpretations: On the one hand, short-term options, i. On the other hand, it could just refer to the holding period of the traded options. Both variants have advantages and disadvantages, which we will discuss in more detail below.
That makes this strategy a fine one for the longer-term investor. After all, we are treating this strategy as an investment, not pure speculation. You also need a pre-defined stop-loss if the price of your option s go down sharply.
Trading psychology is a big part of being a successful option investor. Be consistent.
Stick to your guns.