I am starting to monitor LEAP prices as well at these levels, but am curious, what type of returns are you targeting for shares converted to LEAPs? Understand this is pure guess work at this point, but wondering what others have seen in the past using this strategy.
not-advice
I'm running things differently, but I also have an income focus rather than a capital appreciation focus. I don't have a return target - just looking for a strike to strike improvement and a bunch of cc credits along the way while awaiting the share price move that gets me that strike to strike improvement.
My purpose in buying leaps is for them to act as share replacements. A bit of leverage on the share price change side, and 2x the cc I can sell.
My larger pattern is to be adding leaps (or shares) when we're below what I peg as the midpoint of the trading range (about 950 right now) and be selling some of these as we go above that midpoint. In my case that meant buying some leaps in the low 900s share price, and some more around the mid 800s share price. That used up most of my cash - if we see low 600s again then I'll be adding even more leaps and be tapped out.
At a higher share price, above that midpoint, I'll get really aggressive with some of the call strikes covering leaps that I want to sell anyway. I'm using the %cash in the account to make my decisions and would like cash to be around 30-50%. Next purchase of leaps might push me down to 10% cash, so I'll be selling off leaps as we get back above my midpoint to bring cash back to that 40% ish range.
The larger picture - I'd like to be 50% cash (maybe 40%) the next time we reach ATH, and only have 50% exposure to the upside from there. Not because I'm trying to avoid those additional gains - this is the cost to me for the benefit of regular income.
Buying at a relatively low point - I won't be holding these to expiration. Some fraction (20%?) will get sold around 950 or 1000 share price. Another 20% around 1100? That should set me up at about 40-45% cash the next time we reach an ATH - the real cash level that I'm looking to maintain.
If the shares regress from the ATH then I've completed a cycle (wheel!?!) of buying some of the position low, and selling that fraction of my position high. As we break into ATH territory I'll be missing out on some of the gains, but will still be seeing 1/2 of them. And I'll have a lot of cash on hand pretty much all the time, damping out swings + and -, while generating something resembling income on a monthly basis.
I haven't yet sold shares to convert into leaps, though I've begun thinking about it. So far these mid / upper 600s share price haven't been tempting enough. Low 600s though ... I'm keeping an eye on this choice.
For me - share replacement options are always max DTE options. I've played with shorter duration calls and regretted that; won't do that again. I also go DITM. For choosing my initial June '24 position, shares were low 900s at the time, I was able to get 7 leaps for the price of 400 shares at the time. These were 500 strike.
I've continued buying that strike as I add more and the shares go down.
Were I buying calls today with no other positions for that expiration, I would be looking at something more like 350 to 450. The focus here is on calls that provide a little bit of leverage and behave a lot like shares as the share price goes up and down (for me). Not speculative calls where I'm looking for 2x, 10x, or something. I'm really looking to earn $100 or 200 on strike to strike improvement plus sell cc along the way for income.
BTW - when I opened my original June '24 500 strike position, those calls were about .90 delta. That's what I'll be looking for when the Jan '25 option chain opens up (or that 7:4 ratio). I found 3:2 to be too conservative, and 4:2 to be much too aggressive / close to the money.
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