What Is a LEAP?
A closer look at how LEAPS fit into the TTP strategy.
Team Sang Lucci & Wall St. Jesus avatar
Written by Team Sang Lucci & Wall St. Jesus
Updated over a week ago

The Trading the Post strategy is built off of Long-Term Equity Anticipation Securities, or LEAPS. In the TTP room, a LEAP is referred to as an equity option with more than six months until expiration. Electing to purchase an options contract instead of underlying shares allows traders to control more shares with less capital. However, purchasing long-dated options leaves traders exposed to theta, time decay, while they are in the trade.

For example, if JPM is trading at $160, 100 shares cost $16,000. However, one call option at the $145 strike, 6 months from now, might only cost $2,000.

A LEAP is used instead of common stock because the LEAP’s value, or cost, is less reactive to downside risk while capturing a piece of the upside move. A LEAP’s delta will dictate its responsiveness to price changes in the underlying security. With a high delta, changes in the price of an option will be close to the changes in the price of the underlying security.

Remember, the Trading the Post strategy’s goal is to purchase LEAP contracts and trade around them every week to get them paid for, reduce risk, and establish a “free” position.

Ronchero has developed a checklist for determining whether a stock is a LEAP candidate or not.

Interested in watching Ronchero go through his Selection Criteria for a LEAP?

Check out this video.

Questions or suggestions?

Please reach out if you have any further questions or suggestions.

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