Beginner's Guide to Trading LEAPs: How to Profit with Long-Term Options

LEAP options—Long-term Equity Anticipation Securities—offer traders a powerful way to generate consistent income with a longer time horizon. In this guide, I’ll break down how I trade LEAPs, specifically by selling put options, to achieve steady returns while minimizing risk.
This strategy has delivered a 97% win rate for me this year, and I’m excited to share it with you. Let’s dive into what LEAPs are, why they’re valuable, and how you can use them to boost your trading portfolio.
What Are LEAP Options?
LEAPs are option contracts with expiration dates typically one to three years out, though I focus on those around 365 days to expiration (DTE). Unlike short-term options (30–45 DTE), LEAPs give you more time to be right about a stock’s direction, which is key to increasing your win rate.
They’re ideal for traders who want to avoid the volatility of short-term market swings caused by news, earnings, or other surprises.
Why Trade LEAPs?
Here’s why LEAPs are a cornerstone of my trading strategy:
- Longer Time to Be Right: With a year or more until expiration, LEAPs allow you to ride out temporary market dips. Historically, stocks and indices like the S&P 500 (SPY) trend upward over time, so a longer horizon increases your odds of success.
- Higher Premiums: LEAPs have higher premiums due to their extended duration, providing more income upfront. This extra premium gives you a buffer and enhances returns.
- Further Out-of-the-Money (OTM) Opportunities: You can sell LEAP puts further OTM (e.g., 12–14 delta) and still collect substantial premiums, reducing the likelihood of being assigned shares.
- Lower Buying Power Requirement: LEAPs require less buying power per day compared to short-term options. For example, a $3,737 buying power commitment for a 365-DTE LEAP is far more efficient than a $1,000 commitment for a 30-DTE option when annualized.
- Higher Win Probability: Selling options, especially OTM LEAP puts, means you profit if the stock goes up, stays flat, or even drops slightly—just not below your strike price. This flexibility boosts your success rate.
Risks to Understand
- Liquidity: LEAPs, especially on less popular stocks, can have lower trading volumes and wider bid-ask spreads, increasing trading costs. Stick to highly liquid assets like SPY or blue-chip stocks like Apple or Microsoft.
- Assignment Risk: If the stock drops significantly, you may be assigned shares. Ensure you’re comfortable owning the underlying at the strike price or have a plan to manage assignments.
- Capital Commitment: While LEAPs are buying-power efficient, they still tie up capital for longer periods, so proper position sizing is critical.
My LEAP Put Selling Strategy
I’m a theta trader—I love getting paid to wait. Selling LEAP puts aligns perfectly with this philosophy, leveraging time decay (theta) to generate consistent income. Here’s how I do it:
Step 1: Choose the Right Underlying
I primarily trade SPY, the S&P 500 ETF, because it’s a diversified basket of 500 stocks, reducing the risk of a single company’s news tanking my position.
Occasionally, I’ll trade blue-chip stocks like Apple or Microsoft, but only if they’re showing bullish signals or are oversold. I avoid individual stocks otherwise, as they’re too volatile for my taste.
If assigned, I’m happy to own SPY long-term—“he who dies with the most SPY wins!”—but I’ll wheel out of other stocks by selling calls at the assigned price.
Step 2: Technical Analysis for Entry
To identify entry points, I use weekly charts for LEAPs, as daily charts are less relevant for long-term trades. I look for:
- Oversold Conditions: Stocks or ETFs with RSI (Relative Strength Index) rising from below 30 or MACD crossing above the zero line.
- Support Levels: Stocks bouncing off key support or moving averages (e.g., 50-week MA).
- PSAR Reversals: A Parabolic SAR (Stop and Reverse) signal flipping bullish on the weekly chart. I aim for a slightly bullish or neutral 30-day outlook, expecting the stock to hold steady or rise modestly.
Step 3: Trade Entry and Strike Selection
- Days to Expiration (DTE): I target 365 DTE, but I’ll settle for 300–375 DTE if needed. This gives me a year to capture profits while keeping theta decay in my favor.
- Strike Selection: I sell puts at a 12-delta (or 14-delta in high-volatility environments) to stay far OTM, reducing assignment risk. My goal is to collect a premium equal to 25–30% of the buying power used. For example, a SPY 375-put (13-delta) at $6.33 premium uses $3,737 in buying power, yielding a 17% return. I’d prefer 20–30%, so I might adjust to a higher strike if needed.
- Position Sizing: I risk no more than 2% of my portfolio per trade and allocate up to 30% of my available buying power (50% of net liquidating value) to this strategy, roughly 15% of my total portfolio.
Step 4: Trade Management
- Profit Target: I close trades at a 30% premium capture (e.g., $1.90 of a $6.33 premium) within about 30–40 days. My data shows an average trade duration of 40.7 days with a 7% return on capital.
- Stop Loss: I use a 3x max loss stop (e.g., if the premium was $6.33, I’d close if the loss hits $18.99). Alternatively, I may take assignment if the strike is far OTM and I’m comfortable owning the stock (especially SPY).
- Rare Cases: I might close at 21 DTE to avoid gamma risk, but this is uncommon.
Step 5: SPY-Specific Strategy
For SPY, I add one LEAP put trade every Monday, sized appropriately (e.g., $3,737 buying power per trade). I ladder up to 10 trades or 30% of my buying power, pausing if I hit this limit until a trade closes.
A backtest from January 2021 to June 2023 showed a 45% annualized return, turning $100,000 into $249,000 with no losing trades.
My real-world results this year: a 97% win rate, 7% return per trade, and 64% annualized return.
Step 6: Monitor and Adjust
I track all trades in a spreadsheet, noting premiums, buying power, and profit/loss.
If the market turns bearish, I may pause new trades or take assignments if the stock is far OTM.
In flat markets, theta decay works its magic, and I keep collecting premiums.
Real-World Results
In 2024, my LEAP put trades (SPY, Apple, and others) achieved:
- 97% Win Rate: Only 1–2 losses out of dozens of trades.
- Average Trade Duration: 40.7 days.
- Average Return on Capital: 7% per trade, equating to a 64% annualized return. A backtest on Apple showed a 64% annualized return, turning $100,000 into $339,000 in 2.5 years.
SPY delivered 45% annually. These results highlight the power of selling OTM LEAP puts on high-quality underlyings.
Tips for Success
- Stick to Liquid Assets: Trade SPY or blue-chip stocks to avoid liquidity issues.
- Size Conservatively: Limit risk to 2% per trade and 15% of your portfolio to LEAPs.
- Focus on Theta: Sell options to let time decay work for you, not against you.
- Avoid the Wheel Trap: Don’t plan to hold stocks long-term unless it’s SPY. If assigned, sell calls to exit quickly.
- Use a Reg-T or PM Account: This strategy works best in margin accounts, not IRAs, due to cash-secured limitations. Portfolio margin (PM) accounts amplify returns but require experience.
Final Thoughts
Selling LEAP puts is a fantastic way to generate consistent income with a high win rate.
By targeting 12-delta strikes, collecting 25–30% premiums, and managing trades for 30% profit within 40 days, you can achieve impressive returns while minimizing risk.
SPY is my go-to underlying, but selective blue-chips like Apple can also shine. Stay disciplined, track your trades, and let theta do the heavy lifting.
Ready to try LEAPs? Start small, test your strategy, and join our trading community on Discord for real-time trade ideas and updates.
Happy trading, and here’s to your next big win!
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