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LEAPS Options Trade Management: How to Maximize Your Profits

Making money in the stock market is all about making the right moves at the right time. That’s why LEAPS options can be such a powerful tool for investors. By using LEAPS options strategies, you can maximize your profits and minimize your losses. In this blog post, we will discuss how to manage your LEAPS options trades for maximum profit potential.

We will discuss:

  1. What is a LEAPS Option?
  2. How do you place a LEAPS Option Trade?
  3. When do you manage a LEAPS Option?
  4. How do you manage a LEAPS Option?
  5. Should we layer LEAPS Options?
  6. When do we close LEAPS Options?
  7. Conclusion

What is a LEAPS Option?

LEAPS Options

A LEAPS option is a long-term equity anticipation security. LEAPS options are similar to regular options, but they have a longer expiration date. This expiration date can be up to three years from the date of purchase. LEAPS options give investors the ability to profit from stock price movements without having to commit to buying or selling the underlying stock.

How do you place a LEAPS Option Trade?

Let’s say that you are bullish on Docusign stock and you believe that it will be going up in price over the next year. You could purchase a LEAPS call option with a strike price of $40 that expires in January of 2024. Doing this will cost you $3,285 to control 100 shares of stock. This is versus buying 100 shares that would cost you $6,407. So it is half the cost.

When and How do you manage a LEAPS Option?

Stock Market Timing

There are a couple of different methods that are commonly used.

The first method is to set a price target for the stock and sell the LEAPS call option when the stock hits your target price. This will allow you to lock in your profits and avoid letting the trade run against you.

The second method is to hold the LEAPS call option until it expires. This is a more aggressive approach and it can lead to bigger profits if the stock continues to go up in price. But it also carries more risk because you are letting the trade ride.

You can also use a combination of both methods. You can sell half of your position at your target price to lock in some profits. This way, you have some downside protection if the stock reverses course, but still have a chance to make some big profits if the stock continues to go up.

Should we layer LEAPS Options?

I like to layer LEAPS options if the price goes down against me for no apparent reason. To me, this is a sale! I will likely put another one on at this time.

When do we close LEAPS Options?

We close LEAPS options when we are no longer bullish on the stock. This can be for a number of reasons. Maybe the stock has reached our target price and we want to take profits. Maybe the fundamentals have changed and we no longer believe that the stock will go up.

Conclusion

LEAPS options can be a great tool for investors who are bullish on a stock and want to profit from its price movements. By using the right LEAPS options strategies, you can maximize your profits and minimize your losses.

Do you have any questions about LEAPS options or how to trade them? Let me know in the comments below.

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