A Better Strategy Than LEAPS CALL In A Market Rally?

The LEAPS CALL strategy is an extremely powerful strategy that I use in 2021 to generate most of the 200k profits from options trading.

Read more about how I use this options strategy in 2021 here:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021

However, the subsequent downturn in the market meant that the LEAPS strategy became a double-edged sword as half of my total invested capital is stuck in LEAPS CALL options contract and the clock ticking down every day.

In recent months, I am using another strategy to capitalize on rallies and increase my profits as the share price increases. This is a strategy of rolling PUT contracts and I have shared further in this post:
Why I Choose To Roll My PUT Option Contract When Share Price Rises

While this strategy may not generate as great returns as the LEAPS strategy, it gives me downside protection in case the trend reverses in a market rally. Depending on the type of PUT contract (ITM, ATM or OTM), we may end up getting our capital back if the drop in share price is not too huge. But if it is LEAPS instead, the returns are higher but the contracts will end up all stuck when the share prices start dropping.

Take, for example, Apple stock is trading at USD165 now. If you buy LEAPS CALL contracts worth USD14k, hoping for a rally and the share price of Apple stays stagnant or starts dropping, you will be losing money on the premium you paid. You will get stuck on your contracts or have to sell them at a loss.

However, if the same USD14k is used to buy a cash-secured PUT contract at a Strike Price (SP) of USD140, then the shares can stay stagnant or drop till USD141 upon expiration and you still get to keep your USD14k investment and the premium.

If the share price of Apple rises to USD180, the premium of the contract at SP drops and you can close the contract and lock in your profit, way before the contract reaches expiration. You can then start a new contract with a longer expiration date or strike price and collect another round of premium.

Below is an example of how I rolled Tesla PUT contracts when the share price kept rising.

Opening the PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 4th March 22
Strike Price: USD700
Expiration Date: 8 April 22 (35 days contract)
Premium Received: USD1990
Returns: 2.84% (1990/ 70000)

Closing the PUT Contract

Contract Type: Sell Cash Secured PUT
Date of Contract (Close): 11th March 22
Strike Price: USD700
Expiration Date: 8 April 22 (35 days contract)
Premium Paid: USD1700
Profits: USD290 (1990 – 1770)
Returns: 0.4% (290/ 70000)

Opening a 2nd PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 11th March 22
Strike Price: USD700
Expiration Date: 14 April 22 (34 days contract)
Premium Received: USD2250
Returns: 3.21% (2250/ 70000)

Closing the 2nd PUT Contract

Contract Type: Sell Cash Secured PUT
Date of Contract (Close): 16th March 22
Strike Price: USD700
Expiration Date: 14 April 22 (34 days contract)
Premium Paid: USD1520
Profits: USD730 (2250 – 1520)
Returns: 1.04% (730/ 70000)
Duration of Contract: 5 days

Opening a 3rd PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 16th March 22
Strike Price: USD710
Expiration Date: 22 April 22 (37 days contract)
Premium Received: USD2000
Returns: 2.82% (2000/ 71000)

Closing the 3rd PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Close): 18th March 22
Strike Price: USD710
Expiration Date: 22 April 22 (37 days contract)
Premium Paid: USD1100
Profits: USD900 (2000 – 1100)
Returns: 1.2% (900/ 71000)
Duration of Contract: 2 days

Opening a 4th PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 18th March 22
Strike Price: USD750
Expiration Date: 22 April 22 (34 days contract)
Premium Received: USD1500
Returns: 2% (1500/ 75,000)

Closing the 4th PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Close): 21st March 22
Strike Price: USD750
Expiration Date: 22 April 22 (31 days contract)
Premium Paid: USD1200
Profits: USD300 (1500 – 1200)
Returns: 0.4% (300/ 75000)
Duration of Contract: 3 days

Opening a 5th PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 21st March 22
Strike Price: USD760
Expiration Date: 29 April 22 (39 days contract)
Premium Received: USD1800
Returns: 2.37% (1800/ 76,000)

Total premium = 1800 + 300 + 900 + 730 + 290 = 4020

Duration: 4th March to 29 April 22 (8 weeks)

Returns: 5.2% (4020 / 76,000)

Strike Price: USD760

Between now to 29 April, if the share price keeps increasing, I will keep rolling the contract to lock in more profits, while keeping the PUT at OTM, which lowers the chance of the contract being exercised, and it also gives me a good buffer (existing share price minus USD760) for any price drop/ reversal.

***
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

If the bear market in 2022 is making feel depressed as your stocks come tumbling down, read this article to find out how you can use options trading to help you claw back some of your losses as you await market recovery:
How I Do Earn Even When The Stock Market Is Bearish?

Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market

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

Want to learn more about Technical Analysis (TA) but find it difficult to grasp the concepts? This article brings you TA at a glance, and helps you understand key terminologies, indicators, and techniques used in TA to equip you with the knowledge that can empower you in your investing/ trading journey.
The Newbie Guide To Technical Analysis (TA)

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)

Follow me on your favorite social media platforms, FacebookLinkedIn, or Twitter, to get notified of my latest blog posts. Or join our investing/ trading community at Telegram to exchange ideas or ask questions relating to investing/ trading.

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