LEAPS Options Instead Of Buying 100 Shares!

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InTheMoney's LEAPS Video: https://youtu.be/95suqaJcFtU

This video is all about the benefits of a Call Options placed deep in the money with a .7 delta or higher and an expiration of over a year and up to three years. . This is more commonly referred to as a LEAPS (Long-term equity anticipation securities). They are functionally identical to most other listed options, except with longer times until expiration and when to compared to just buying 100 shared outright we see that the max loss is a fraction of the premium paid and can be calculated by looking at the extrinsic value when you purchase the option.

A LEAPS contract grants a buyer the right, but not the obligation, to purchase or sell the security at the predetermined strike price on or before its expiration date if it is in the money.

In this video I will compare the pros and cons of buying a LEAPS option vs just buying 100 shares of the stock at the current share price and why this really makes no sense at all to me. I will never be purchasing 100 shares at one time ever again now that I know I can use this long call option the same I could if I owned the stock. Because the delta on this option is so high, we don't have to worry about expiration, and the downside max loss is defined, we can appropriately assess our risk!

We will see that there is actually MORE RISK in buying the 100 shares of the stock that buying a leaps, knowing the strike price in which the option will be worthless, therefore knowing how much you can lose.

Because the premium to purchase a LEAPS is so much less that the capital needed to buy 100 shares, you now free up additional investment dollars that you can use to make up the extrinsic value that you may lose if you call expires worthless. The way I play to recuperate the extrinsic value is buy selling spread against this LEAPS called The Poor Man's Covered Call. This long call simulates owning 100 shares of the stock! So you can sell covered calls against it and collect premium to lower you premium paid!

The last pro I will discuss in this video is that the tax benefits. If you hold this option for over 1 year and then sell the options the profit of this sale will be taxed as a long term capital gain which is not the case for options traded in less than a year time frame.

To address one con. Although this replicates owning 100 shares, you do not actually own them. Because of this if you make a LEAPS with a dividend stock you will not collect the dividends during the time you own the contract.

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Видео LEAPS Options Instead Of Buying 100 Shares! канала Brad Finn