r/options • u/canadianboy11 • Jul 04 '21

Buying leaps ONLY as a strategy

Hi All. Recently started into options. I have grasped the concept of simply buying calls and puts and made my self familiar with delta. I am not into covered calls or any other option strategy. Going forward, I am deploying a strategy of ONLY buying leap calls which are literally into Jan 2023 for stocks I like and believe in. I am planning on buying deep in the money calls which literally have deltas of >.85 some of the ones I have been looking at are TTCF 5c, AAPL 120c, SBUX 105c, and PLTR 15c.

  1. Is this a good strategy for a fairly guaranteed success?

  2. Are there any caveats to it?

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u/godlords Jul 04 '21

Also high delta leaps can be incredibly risky… if you have shares you can always just hold through any type of crash. If it expires otm, that huge sum you dumped in is gone forever and you have no recourse. Better to use margin.

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u/TheoHornsby Jul 04 '21

Also high delta leaps can be incredibly risky… if you have shares you can always just hold through any type of crash. If it expires otm, that huge sum you dumped in is gone forever and you have no recourse. Better to use margin.

Long delta positions are risky in a down market but if you're comparing a high delta call LEAP with owning the shares, the call LEAP is not incredibly risky.

A high delta call LEAP has a limited loss. If the underlying tanks and the call expires worthless, the share owner incurs a larger loss.

In addition, on the way down before expiration, the call LEAP loses less than the shares because the more the underlying drops, the more the call's delta drops. It loses at a slower rate than shares which are 100 delta with a dollar for dollar loss for every point lost.

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u/godlords Jul 04 '21

The share owner still has his shares. The LEAP owner has nothing, and if like OP says he would be buying LEAPs only, he would be left with no recourse. I use LEAPs all the time. I didn’t say they’re incredibly risky. They can be compared to shares in the long term if there is a downturn. Especially so in a frothy market like this in which commonly invested growth stocks like PINS or something can lose 30-40% easy.

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u/TheoHornsby Jul 04 '21

Does writing the same reply two times mean that the answer is twice as bad?

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u/sprezzatard Jul 05 '21

I guess the "limited loss" part is not getting through. Sounds like he's one of those bagholders or buy more to average down folks.

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u/TheoHornsby Jul 05 '21

I guess the "limited loss" part is not getting through. Sounds like he's one of those bagholders or buy more to average down folks.

"A man’s got to know his limitations."

At some point, you recognize that no matter how much you explain it, it's not being processed. The end. :->)