Playbook #111: LEAPS Long-Term Equity Anticipation Securities
🖼️ The Big Picture
“I like the stock.” The famous words of Keith Gill, the face of the GameStop short squeeze that’s now becoming a movie, nicely sum up “value investing,” which when combined with LEAPS can be a powerful (and profitable) mix.
LEAPS (long-term equity anticipation securities) are publicly traded options contracts with expiration dates that are longer than one year. They are essentially the same as any other option that can be bought, sold, and traded on the stock market — except they can be extended up to 3 years (where most options expire in 6 months or less).
Savvy investors have made an absolute killing with this strategy in the aftermath of the pandemic. One member of our community took notice of a major airline’s stock crash (remember when planes were grounded? Ya that was weird…) and knew there was no way it would stay that low. The world had to come back to “normal” at some point, right? Well, his move paid off — to the tune of 6-figure profits.
One of our research team members made a similar play with Exxon stock. It crashed, and he knew it would bounce back… just not when. So he sold naked LEAPS PUT options with 1-2 year expirations, which earned him a nice 130% return in less than 2 years.
So why not just buy the stock? Well, you can… but it takes a lot of capital.
The advantage with LEAPS (and options in general) is that they give you leverage. One options contract gives you the right to control 100 shares. And when combined with margin, you can make bigger bets when less upfront capital.
That can be a good thing if you’re right (and of course a bad thing if you’re wrong). However, as you’ll see in the Upside & Opportunity section, you can combine these long-term options with other strategies to mitigate risk and create cashflow along the way.
If your Investor DNA involves stock trading, then this is definitely a strategy you want to be familiar with. Let’s dive in.