Dave, So to continue on the discussion, especially as it pertains to LEAPS vs. stock. You would not be buying LEAPS at this point because we are in the mid-high range unless they were DITM to take advantage of the increased leverage they may have over buying more stock?
Yeah, since we're in mid-high range (IMHO) I don't look at it as a good opportunity to buy a new long-term position (stocks or LEAPs). However, I do look at it as a good opportunity to keep holding a long-term position since a growth stock can keep trading in a mid-high range for many years. So if one sells at a mid-high range thinking they can accumulate more later, they might not get a chance. Even if the stock gets to a super-high range, I still think it's a good opportunity to keep holding a long-term position that you already have, since there would be tax consequences to selling your position and in the longer term future the stock is likely to be much higher. In a tax-deferred account, everything changes since taxes are deferred so I think it makes sense if you have ambition and know how to discern a super-high range, then you could convert a part of all position to cash and wait for a correction. The difficult part is when to buy back again since a correction will likely bring it back to a mid-high range but probably not a low-mid range.
Regarding DITM, I personally wouldn't be buying deep ITM options as a long-term stock replacement during a mid-high range. I don't like the risk/reward profile. I'd much rather be buying stock or LEAPs (of any kind) during a low-mid range.
It all comes down to these principles... buy stock when the company is undervalued (low-mid range or lower) and avoid getting sucked into the hype and enthusiasm (mid-high and super high ranges). Options (even DITM) are leveraged instruments, so the buying opportunity needs to be even better than if/when you bought stocks. In other words, buy LEAPs when the value of the company is even lower than the low-mid range (or lower) price you would have invested stock at.
This is the main reason I didn't agree with people selling their long-term stock positions for LEAPs several months ago when the stock was $220-250 range. I felt like at that time the stock was at a super high trading zone. Enthusiasm is the highest during the super high trading range and the stock looks so sexy (believe me I know), and I understand the appeal of buying or even trying to keep the same number of shares but with less cash via LEAPs. But with LEAPs you're taking on a much more risk asset (although with less cash than stock), which at the right trading range (ie., near super low) can have a great risk/reward profile. But a super-high trading range, the chances are you'll get burned.
Also, it appears you would do a LEAPS replace stock in a non taxable account when you feel valuation is very low....Otherwise you would never sell your stock to buy LEAPS?
I think there are a lot of factors involved. But in a tax-deferred account, if I'm confident in the long-term story of the company and it's trading close to a super low range, then I have no problems selling stock and going all LEAPs, preferably 1.5-2 years out. I also think it's could be okay to start buying LEAPs at a low-mid range but in the lower half of the low-mid range, depending on our goals.
In a taxable account, it's much more complicated because each person's tax rate is different and that affects decisions in a rather profound way when things are all calculated in a spreadsheet. Generally, the lower your taxes are (ie., if you're at 15% long-term capital gains tax and/or lower income tax brackets), then it could make sense to follow something closer to the tax-deferred account strategy I laid out above, but with some adjustments of course (you'd need lower risk and greater reward in order to sell stocks and switch to LEAPs since you'll be needing to pay taxes. So you'd probably want to buy LEAPs as it approaches the super low range. (Note: my personal super low range is quite low and I don't expect it to get there because the bargain investors will sweep it up before, that's why I say "as it approaches the super low range".)
Now on another question, it gets quite complicated when new investors come along and say, "is it a good time to buy some TSLA?" Generally, if the trading range is low-mid, then it usually is a good time to make a long-term investment. But if the stock is at a mid-high range, it's tough because if you make a long-term investment then it could go a lot lower but if you don't make an investment the stock could trade at a mid-high range for quite a few years to come and you miss out. So, in this case if the stock is already at a mid-high range and person really wants to get in with TSLA, I think I'd probably recommend more of a short-mid term position, perhaps with a smaller position, maybe ITM options, maybe stop-loss (although controversial), etc. There's no perfect approach here but I wouldn't disagree too heavily with a person wanting to take a small/modest position if they understand the risks involved. It's just that I'd much rather it was a low-mid trading range, and the person bought a large long-term position. That's a much better risk/reward profile.
and I appreciate the feedback. I've read a ton of the stuff you've written here (even if my actions do a poor job of reflecting it) and I figured it must have sounded different in my head than yours.
