Most investors would jump at the chance to stretch their capital, reduce their cost basis and increase their rates of return on their investments…
That’s all possible with LEAPS call spreads.
At the Investor’s Blueprint Live event in Delray Beach, Florida, expert trader, analyst and educator, Michael Shulman, shared a professional tactic with the audience in his special presentation, “Advanced Income Trading Tactics: The LEAP Call Trade.”
“LEAPS is just a fancy-schmancy name for a long-distance call or put,” Shulman stated.
In other words, LEAPS—a.k.a. Long-term Equity Anticipation Securities—are simply options with long-term expiration dates greater than one year.
While employing this method can stretch your capital, reduce cost basis and increase rates of return, it also carries some risk. As with all options, LEAPS expire, but have a longer time window.
But fear not, independent investors—there are ways to prepare for those risks…
Enter Shulman’s “Free Money Trade,” which is buying a deep-in-the-money LEAP and selling shorter-term calls.
Over a period of 12 or more months, he explained, that move can give you a zero cost basis and a chance to be more aggressive. It also can significantly boost the rate of return compared to the underlying stock, potentially doubling the rate of return.
Although a LEAP call trade can offer big benefits, those considering using this tactic should ease into it, Shulman advised.
“Capital preservation is first, second and third,” he declared. “LEAPS do decline in value. They can have a deep decline… it’s the acid reflux form of trading, and it can be a little tough on the nervous system.”
Since LEAPS can be very illiquid and the spreads can be “wicked,” Shulman strongly suggests using limit orders.
Traders and investors should look before they LEAP by doing some dry trading. Shulman recommends using the CBOE’s virtual trading dummy site.
“That way, you can gain enough practice and know-how to hone your skills and confidence before trying the tactic in the real market,” he said.
Shulman concluded his talk with an invitation to email him any questions at [email protected].
Want Michael Shulman’s complete LEAPS presentation?
You can get access to the Investors’ Blueprint Live recordings for 60% off…
Spend less money today so you can make more money tomorrow… that’s smarter investing.
You’ll learn from top experts, including Michael Shulman, Jim Woods, Jamie Dlugosch, Jon Lewis and special Keynote Guest, Tom Essaye. Together, that’s over 100 years of real trading expertise to guide you.
Every workshop recording is a step-by-step training program that gives you an immediate headstart on using the strategies or tactics that fit your investing style.