LEAPS is a powerful strategy that can help us magnify our gains when the stock is on a bullish run. However, the opposite is also true as in a downtrend, as LEAPS will be magnifying your percentage premium loss faster than the percentage share price drop. So, we need to understand the risk if we wish to use this strategy. In this article, I wish to share 3 reasons or scenarios why I will be selling my LEAPS contracts.
Reason 1: To lock in profits when the uptrend reverses
LEAPS premium can increase exponentially if the share price is on a bull run but I will be selling the LEAPS contract if I notice that the trend is reversing. This usually happens when the gains start to get lower and eventually sideways before going down. However, some stocks can rise fast and fall fast too. As a general rule of thumb, if the entire market is going through a correction, I will take profits on my LEAPS and realize my gains.
Reason 2: To cut loss on losing trades
I have made some bad decisions when it comes to picking my LEAPS and lost money on companies such as Disney, Twitter, Pinterest as their share price dropped significantly over time. In such scenarios, I may choose to cut my loss and prevent a bigger loss, if I feel that the future looks bleak for these companies. Recently, I did a spring cleaning on my LEAPS portfolio and cut losses on those LEAPS that are expiring soon.
Reason 3: To release capital for other trades
There were times where my available funds were low and I had to source for capital to buy options on stocks that I believe are at an attractive price. In such scenarios, I may sell off some LEAPS contracts, regardless of whether they are in profits or loss, to free up the cash that I need to make new trades. I recently sold my Disney LEAPS at a loss to free up capital to buy Tesla LEAPS.
I hope this sharing is useful to you and do subscribe to this blog if you find value so that you can be notified of new posts via email.
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Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading
The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
The Ultimate LEAPS Options Thread
Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
MY TRADES
Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)
I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day
I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021
This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months
Learning Investment With Jason Cai 