The US market continued to sell off on 3 Dec 21 (Friday) over fears of interest rate hikes and the new covid Omnicron variant. The sell-off capped a bad week for the US stock market, which began a selloff last Friday (26 Nov 21).
So what did I do during this red day? It was a busy trading day for me as I closed some of my LEAPS contracts to raise capital to buy the dip, bought a PUT contract on Alibaba (expiring Jun 2022), sold Covered CALL on Palantir (PLTR) and bought 17 LEAPS contracts on my favourite and strong conviction stocks.
Here are some positions that I have closed to lock in the profits (just in case the market continue to drop and the profits evaporate off right in front of me).
The total profits amount to USD4,917 and also release much-needed capital for me to buy more LEAPS contracts. I am also clearing away those LEAPS that are expiring in 2022 and early 2023 to buy LEAPS that are furthest away from expiry, e.g. Jan 2024.
The below table depicts the profits for each LEAP contract.
With the profits, capital released and my spare capital, I spent USD31.4k to buy 17 LEAPS contracts on the stocks that I have strong conviction in. They include Microsoft, Netflix, Apple, Facebook AMD, Nvidia and Tesla. Most of these LEAPS contracts will expire on Jan 2024, which is 2 years from now. That will give me a long enough runway for these tech and semiconductors giants to rise in value for both share price and premium price. If the worst happens, e.g. a market crash occurs in the coming weeks, I will continue to average down and buy the dip, using the spare capital release from cutting the losses on my legacy stocks.
The below table shows the details of my 17 LEAPS contracts.
My Thoughts & Strategies
I believe the market is going through a correction that is similar to what we experienced in Sept 2021 where there was a correction for tech stocks. This presents a great opportunity for us to buy the fundamentally strong companies before they start rising again in the coming months, especially if these companies report strong Q4 earnings results at year-end.
I also learnt from my Sept 21 experience not to be too portfolio-heavy on LEAPS. This is because LEAPS can magnify returns when the share price increases but if the share price drops, the premium can drop significantly. Therefore, in the months where the market go sideways or downwards, there will be no income coming from these LEAPS contracts and we may even find ourselves being in the red for our premium. In times like this, using the Wheel strategy is more advantageous as we can still generate some income using covered calls or cash-secured puts. See this article for the comparison of strategies, Wheel Vs. LEAPS.
This is my current LEAPS & Wheel Allocation
LEAPS Strategy -> 62.91%
Wheel Strategy ->37.09%
As compared to my previous & Wheel Allocation in Sept:
LEAPS Strategy -> 70.75%
Wheel Strategy -> 29.25%
My total profits earned from options trading this year stands at SGD$199,988.70 or USDS148,139.78
Conclusion
I hope this sharing has been useful to you and helps to calm your nerves as you see the market frantically selling off. The fundamentally good companies will generally rise over time, as seen numerous times in the last 100 years and longer. Thus, keep the faith, hang in there and all the best!
Learning Investment With Jason Cai 
I really like your articles on LEAP options with lower deltas. I bought some LEAPS this week as well for Jan 2024, hoping to eventually capture profits as the market moves from these dips. I don’t have enough money to buy ATM or ITM call options. So, I appreciate you sharing your experience with OTM options. I am fairly new to LEAPs and I am planning to use it to supplement the Wheel strategy.
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Hi Tammie, thanks for sharing your thoughts. I am glad to hear that this investment blog has been useful to you. If you are buying into fundamentally good companies, the LEAPS should pay you good rewards in the months to come. All the best!
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