I bought a low delta Tesla LEAPS on 15 Oct 21, with a strike price of $1500, expiration date on 20 Jan 23 with a delta of 0.194. I pay at a premium of $3750 ($37.50 x 100) and Tesla’s price was $839.70 at the time of purchase. It was before Tesla’s earnings announcement on 20 Oct but I sensed that Tesla was on a good uptrend momentum. I chose a low delta LEAPS option (which translates to a low premium paid) to minimise my risk as the share price may fall back to $600 to $700 range (like the past year) if somehow the earnings do not meet expectations.
With the strong earnings quarter and a major catalyst from the announcement that Hertz, a car rental company, was going to buy 100,000 vehicles from Tesla to add to their rental fleet, Tesla’s share price skyrocketed and closed at $1,140 on 29 Oct 21.
I have shared in many articles that LEAPS can magnify our returns when the stock is on a bull run as LEAPS essentially simulate owning 100 shares but using a significantly lower capital. Because of that, the percentage return of capital is much higher as compared to owning 100 shares.
Let’s illustrate with this simple example:
Tesla’s share price on 15 Oct 21 was $839.70. On 29 Oct 21, it grew 35.8% to $1,140.
My LEAPS was purchased at $3.75k, but it grew 236% to $12.6k.
Therefore, LEAPS actually helps to magnify returns by 6.6 times (236 / 35.8).
If you are keen to learn about LEAPS, below are some articles that can guide you along:
How Does LEAPS Works And How I Use LEAPS To Maximise Gains?
I Was Laughed At When I Told Them I Bought LEAPS With A Low Delta
Why I Buy LEAPS With A Low Delta?
Understanding How CALL Option Works
Learning Investment With Jason Cai 