Strategy Source

Creator/Channel: Tom King

Published Date: September 25, 2025

Link: LEAPS Mastery Training – How I Trade Long LEAPS

Trade Setup

Action (Sell (-)/Buy (+))	Leg	DTE	Strike Price / Delta Target	Width
Buy (+)	Long Call (LEAPS)	270 to 480+ (9 to 16 months)	75 to 85 Delta	N/A

• Total Capital Required: Approximately 15% to 30% of the cost of buying 100 shares of the underlying stock (e.g., $6,700 instead of $21,800 for the provided Amazon example).
• Execution Context: The video outlines a theoretical model and screener setup for a long-term investing account using Amazon (AMZN) as a visual example.

Strategy Application

Trading long LEAPS (Long-Term Equity Anticipation Securities) is an aggressive capital appreciation strategy designed for an investing account rather than a short-term cash flow account. Instead of settling for standard 10% annual stock market returns or tying up massive amounts of capital buying physical shares, you use deep in-the-money options to mimic stock ownership.

• The Time Differential: You are buying options with massive timelines, typically 9 to 16 months until expiration. By going this far out in time, you experience very low Theta (“Time decay” mechanics). This gives your bullish thesis plenty of time to play out without the option losing significant value to time decay every single day.
• Mechanical Strike Selection: You strictly target the 75 to 85 Delta (Strike metric / Directional bias or “probability of success”), with 80 Delta being the ultimate “sweet spot.” This means your option will capture roughly 80% of the actual stock’s dollar move, but for a fraction of the buying power.
• The Buffer Zone: The safety cushion here comes from the reduced capital outlay and the technical entry. You are capping your maximum structural loss to only the premium paid. Furthermore, you wait for a 5% to 10% market pullback, ensuring you enter near major support levels (like the 50-day or 200-day moving average) or when the RSI drops below 50 (ideally under 30) to establish a technical floor.
• Market Environment: This is a purely bullish strategy utilized in an upward multi-year trend. It focuses heavily on broad market indexes (SPY, QQQ) or high-quality large-cap stocks with at least 10% year-over-year earnings/revenue growth and a 15% Return on Equity (ROE). To ensure you aren’t overpaying for the options, enter only when the IV Rank (Implied Volatility) is under 30.

Risk Profile

• Wing Widths: Not detailed in source transcript (this is a single-leg directional strategy, not a spread).
• Maximum Risk: Your absolute maximum loss is capped at the premium paid for the LEAPS contract. However, because these are options, they can go to zero if the stock completely crashes and fails to recover before expiration.
• Leverage Risk: Leverage cuts both ways. While a 10% upward stock move can yield a 26% return on your LEAPS, a minor 2% to 3% drop in the underlying stock can trigger a rapid 9% to 10% drop in your option’s value.
• Capital Preservation Rules: Never risk more than 5% of your total portfolio on a single LEAPS trade. Keep your total portfolio allocation for LEAPS capped between 30% and 40%. Start with a “half position” to test the waters, and scale in later if the technical thesis holds.

Expected Outcome

1. The Bullish Run (Your Base Win)

The underlying asset resumes its upward drift. Because you hold an 80 Delta option, your LEAPS contract accelerates in value, capturing the vast majority of the stock’s dollar-for-dollar gains. Due to the reduced upfront cost, your percentage return on investment dramatically outpaces standard stock ownership (e.g., making a 26% return on the option while the stock only moves 10%).

2. The Sideways / Downward Grind

The market chops sideways or drops. Because you bought deep in-the-money with a year of time, your daily Theta decay is minimal, but the position will suffer localized drawdowns due to the leverage.

Management & Exit Triggers

• Primary Target: Take half of the position off the table when you reach an 80% to 100% gain (a full double). Let the remaining half ride to target 1.5x to 2x gains, effectively playing with “house money.”
• Leverage Reset (Rolling Up): If the stock rallies hard and your option goes deep in the money (e.g., reaching a 90 Delta), roll the option up back to the 80 Delta strike. This allows you to book profits, pull cash out, and re-establish your leverage at a lower cost.
• Time Decay Ejection: When the LEAPS contract gets down to 3 to 4 months left until expiration, you must either close the trade entirely or roll it out to a brand new 12-month expiration to avoid accelerated time decay.
• Defensive Stop Loss: Manually exit the trade and take the loss if the underlying stock closes below major structural support (like the 200-day moving average), if the LEAPS contract loses 50% of its initial value, or if the fundamental company thesis completely changes.