Supercharge Your Portfolio with LEAPS: The Secret to Long-Term Growth!
Welcome, fellow investor! It's great to have you here.
I want to talk about something today that has completely changed the way I think about long-term investing.
We've all heard the advice: buy and hold.
It's a classic for a reason, and it’s a strategy that has served countless investors well over the decades.
But what if I told you there’s a way to get the incredible leverage of options without the gut-wrenching stress of short-term expiration dates?
What if you could make your long-term bets even more powerful?
I'm talking about LEAPS, or Long-Term Equity Anticipation Securities.
If you're already familiar with options, you might be thinking, "Options?
Those things expire in a few weeks or months, and time decay is a killer!"
You're not wrong, but LEAPS are a different beast entirely.
They are the marathon runners of the options world, not the sprinters.
And for a long-term investor like you and me, that changes everything.
Table of Contents
- What Exactly Are LEAPS?
- Why Choose LEAPS Over Standard Options?
- The Unbeatable Power of Leverage with LEAPS
- Ready to Dive In? How to Buy Your First LEAPS Call Option
- A Real-World Strategy for Using LEAPS
- Hold on a Second, What Are the Risks?
- Is LEAPS the Right Fit for Your Portfolio?
What Exactly Are LEAPS?
So, what are we actually talking about here?
Think of LEAPS as long-term options contracts.
While a typical option might expire in a few months, a LEAPS contract has an expiration date of at least one year and up to three years out.
This extended timeframe is the entire point.
It gives you a massive advantage that you just don't get with standard options.
The core of an options contract is the right, but not the obligation, to buy or sell an asset at a predetermined price (the strike price) on or before a certain date (the expiration date).
With LEAPS, that "certain date" is way, way down the road.
This means you have plenty of time for the underlying stock to do what you think it's going to do.
Let me put it this way.
Standard options are like trying to catch a fish with a tiny net and a very short line—you have to be quick and precise, and it's easy to miss.
LEAPS are like fishing with a giant, wide net and a long, sturdy line.
You can cast it out, sit back, and have a cup of coffee.
The fish has a lot more time to swim into your net.
That's the kind of investing I love—less stress, more potential.
Why Choose LEAPS Over Standard Options?
This is where the magic really happens.
There are a few key reasons why LEAPS are a game-changer for long-term investors.
First, you have a huge advantage with time decay.
Time decay, or "theta," is the silent killer of options.
Every single day, a standard option loses a little bit of its value just because it's getting closer to its expiration date.
With a LEAPS option, the impact of time decay is a mere whisper compared to the roar it makes with a short-term option.
Because you have so much time left, a day or even a week doesn't make much difference.
The value of the LEAPS is primarily driven by the movement of the underlying stock, not the ticking clock.
This is a huge relief for anyone who's ever watched a short-term option contract melt away while the stock just sits there.
Second, LEAPS give you flexibility.
When you buy a long-term call option on a great company, you are essentially making a bullish bet on its future.
And you have a lot of time to be right!
You can sell the contract for a profit, exercise it to own the shares, or even use it as collateral for other strategies, like a covered call.
This brings me to my third point: LEAPS can be a fantastic way to acquire a position in a stock you love for a fraction of the cost.
Instead of buying 100 shares of a company at $200 a share, which would cost you $20,000, you might be able to buy a LEAPS call option for a fraction of that.
Let's say a LEAPS call option with a strike price of $200 costs you $2,500.
You've just controlled 100 shares of that company for a fraction of the capital.
Your risk is limited to the $2,500 you paid, but your upside potential is huge.
The Unbeatable Power of Leverage with LEAPS
Let's get into the nitty-gritty of why LEAPS are so darn powerful.
The term "leverage" is often used in a scary way, but when used correctly, it can be a tool for accelerated growth.
With LEAPS, you get to control a large number of shares with a relatively small amount of capital.
Let's use our previous example.
You believe that a company currently trading at $200 a share is going to hit $300 in the next two years.
If you buy 100 shares outright, it costs you $20,000.
If the stock hits $300, your 100 shares are now worth $30,000, giving you a profit of $10,000.
That's a nice 50% return.
Now, what if you bought a LEAPS call option with a strike price of $220 for a premium of $25 per share?
Remember, each contract controls 100 shares.
So, your total cost is $25 x 100 = $2,500.
If the stock hits $300, your option is now "in the money" by $80 ($300 - $220).
The value of the option contract has skyrocketed.
Let's be conservative and say the value of your option contract is now worth $75 per share.
You can sell your contract for a total of $7,500.
Your initial investment was $2,500, and you sold for $7,500.
That's a profit of $5,000!
Wait, that's not as good as the $10,000 profit from buying the shares, right?
Not so fast.
You only invested $2,500 to get that $5,000 profit.
That's a 200% return on your initial capital.
You just made a 200% return while the stock only went up 50%.
That's the power of LEAPS.
It's about getting more bang for your buck and leveraging your capital to grow your portfolio much faster.
This is not a get-rich-quick scheme; it's a strategic way to use options to enhance a well-researched, long-term bullish outlook.
Ready to Dive In? How to Buy Your First LEAPS Call Option
Okay, I've got your attention.
So how do you actually do this?
It's a lot simpler than you might think.
First, you'll need a brokerage account that allows you to trade options.
Most major online brokers offer this.
Once you're in, you'll need to select a stock that you have a strong, long-term conviction in.
I'm talking about a company that you genuinely believe will be worth more a year or two from now.
Let's say you've done your homework and you're bullish on a tech giant like Apple (AAPL).
You would go to the options chain for AAPL and look for the expiration dates that are far out, typically in January of the next one or two years.
That's where you'll find the LEAPS contracts.
Next, you'll need to choose a strike price.
This is a critical decision.
A good rule of thumb is to choose a strike price that is "in the money" or "at the money."
"In the money" means the strike price is below the current market price for a call option.
This costs more upfront but has a higher probability of success.
"At the money" means the strike price is right around the current market price.
Finally, you’ll place the order to buy the call option.
You'll see the price listed as the premium.
Remember to multiply that by 100 to get the total cost of the contract.
That's it!
You now own a LEAPS option.
You have a long-term, leveraged position in a stock you love, and you didn't have to break the bank to do it.
A Real-World Strategy for Using LEAPS
One of my favorite ways to use LEAPS is as a replacement for owning the underlying stock.
Let's say you have $10,000 to invest.
You could buy 50 shares of a $200 stock.
Or, you could buy a few LEAPS options for a fraction of that cost.
Let's say you spend $3,000 on two LEAPS call options with a strike price of $200.
You now have $7,000 in cash left over.
This is where the magic happens.
You can invest that remaining $7,000 in something else, like a low-cost ETF or another stock.
You've essentially diversified your portfolio while still maintaining your high-conviction bet on that first stock.
Your LEAPS contracts give you the exposure you want, and your cash can be put to work somewhere else.
It’s like having your cake and eating it too.
Another fantastic strategy is the Poor Man's Covered Call.
This is where you buy a deep-in-the-money LEAPS call and then sell a shorter-term call option against it.
You're essentially generating income from your long-term position, all without ever owning the shares outright.
This is a more advanced strategy, but it shows the incredible versatility of LEAPS.
Hold on a Second, What Are the Risks?
Okay, I've been talking about all the good stuff, but it wouldn't be a real conversation without talking about the risks.
This is not a risk-free strategy, and it’s important to understand what you’re getting into.
The biggest risk is that the stock you bet on goes down or doesn't move enough.
If the stock price stays below your strike price by the time the LEAPS contract expires, you lose your entire investment—that is, the premium you paid for the option.
Your maximum loss is limited to the cost of the option, but that's a 100% loss on that specific trade.
Another thing to consider is liquidity.
For some of the more well-known stocks, liquidity is not an issue.
There will always be a market to buy and sell your contracts.
But for smaller, less popular stocks, the options chain might be thin, and you might have trouble getting a good price.
Always check the bid-ask spread before placing a trade.
Lastly, LEAPS still have time decay, just at a much slower rate.
You can't just buy a LEAPS contract and forget about it for two years.
You need to manage your position, just like you would with any other investment.
Is LEAPS the Right Fit for Your Portfolio?
So, should you be using LEAPS?
That's a question only you can answer, but I can give you a few things to think about.
If you're a long-term investor who's tired of the constant stress of short-term options but still wants to take advantage of leverage, LEAPS could be a perfect fit.
They are an incredible tool for investors who have a strong conviction about a company’s long-term prospects but want to free up capital for other investments.
Just remember to do your homework.
Invest in companies you truly understand and believe in.
Start small, get a feel for how they work, and then, if you feel comfortable, start integrating them into your overall strategy.
They are not a replacement for good old-fashioned due diligence and a solid investment plan.
But they can be a powerful way to put your convictions to work and potentially supercharge your returns.
Happy investing!
LEAPS, options, leverage, long-term growth, investing
