Wednesday, May 30, 2012

Example of Rolling up a Winning LEAP for $AAPL

since i got asked a few questions about it ill expand the explanation.. the scenario is that you made a successful entry with LEAPS in the past had a good gain and now are wondering what to do. for example say you bought Jan2013 350strike LEAPS last year and now have a good gain. Rolling that jan2013 out to jan2014 350strike would cost you money. as of this moment:

Jan2013 350call is at $227 ($22700)
Jan2014 350call is at $243 ($24300)  

so to roll it out one year would cost you $1600 per contract..$4800 for three.. not too appealing. assume you have three contracts.. if you are comfortable with 3 contracts, look at the strikes for 2014 for the level that closly matches the price of the jan2013 contract..

Jan2014 370call is at $227 same as the Jan2013 can now roll your jan2013 350calls to jan2014 370calls for zero gained another year on your LEAPs for free... now continue with your original thesis..whether that is long only or selling monthly short calls for income, example:

Now you own 3 of the Jan2014 370calls
and you can sell 3 of the July600 short calls for $1500 each for $4500credit

Option2 is rolling up to higher strike but do so with a strike level that nets you more contracts, such as the Jan2014 450call.... 3jan2013 calls pretty closely equals 4 jan2014 450calls..give or take a bit based on the bid/asks.... so now you have 4 LEAPS you can sell monthly short calls agains..for example

now you own 4 of the Jan2014 450calls
and you can sell 4 of the July600 short calls for $1500 each for $6000 credit

see can take in $6000 credit vs $4500 credit on previous example.. all for not committing any more credit, no more buying power needed..and all you did was gain another 12months on your you 12more months to do these monthly credit sales.. that $6000 a month will quickly add up to a juicy return at years end.

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