for what it's worth and trying to keep this subject alive:
for the last four years, i've averaged over 60 per cent annual profit by trading leaps. my rules:
1) buy leaps either in the money or at-the-money.
2) buy them with the longest possible time until expiration. (i buy them when issued; for instance, the january-2002's will start selling within the next 2 or three months and i will start accumulating my next year's group of leaps then.)
3) buy leaps on value stocks; forget growth stocks which have an appalling tendency to go to zero and stay there. (the dogs of the dow is a good place to start looking for value.)
4) sometime in the next 12 months, try to stake out a "free position:" if a stock goes up and the value of the leap doubles, i sell off half of it and get back my original stake. the half i keep has a zero cost basis and represents my profit. i can hang onto that until the best time to sell. (in a down-trending market, i might sell before the leaps price doubles: for instance, if i bought nine leaps contacts at a price of 12, i might sell off six contracts at a price of 18; then i have a free position on 3 contracts.)
5) try to have these free positions in place within 12 months; this frees up your basic leaps investing money for the following year.
6) in an ira, you have no tax problems with selling quickly; but you need to hold 12 months for longterm cap gains rates in you're in a taxable account. sometimes, i'll spread my leaps purchase over 2 accounts; able to sell the ira purchase in the event of a quick profit -- (no tax consequence) -- and keeping the taxable purchase as my "free position," to hold for more than a year.
best, warren m. |
