So let’s look at the very first official LEAPS trade made.
I don’t generally think too much about the fundamentals of a company and I don’t spend too much time dwelling on things like P/E
I do care about where a stock’s price has been and where it currently resides and what kind of periodicity a stock’s price has exhibited.
In general, I like to add new stocks or new positions when a stock’s price is somewhere at or below the mid-point of its recent range.
While I do say that I’m not a technician and I certainly don’t draw lots of lines, I do like to look at that periodicity and I do like to look at past behavior.
In the case of L Brands, a stock, like so many that I follow, I have traded in its shares many times.
Looking at the chart above, it does appear as if the price has plateaued at its current level, which is well off the near term highs.
Now, let’s look at two trades involving L Brands that were made today:
The first was made in the morning and it represented the first purchase of new shares since the launch of LEAPtoProfit.
The shares were purchased for $36.81 and I elected to sell a 6 month long call option contract at a $40 strike.
If those shares are assigned on or before January 18, 2019 the expiration date, the ROI (return on investment) would be 8.7% for that 6 month period.
Now, let’s add the premium received for having sold those options.
The premium was $2.36.
That represents an additional 6.4%
Now, there’s also a dividend to take into consideration and for L Brands, it is a very good dividend of $0.60 per share, with ex-dividend dates expected in September and December.
The funny thing about dividends and time remaining on option contracts is that even if shares are deep in the money, the more time remaining on the contract, the more likely that those options will not be assigned.
But, in the event that there is some thought to those shares being lost early, there is always the thought of rolling over those options to gain more premium and perhaps even keep the dividend.
Anyway, if those shares are assigned in January 2019, the accumulated return would be $6.75 or 18.3% for 6 months.
Another way to look at it is that your break-even on the shares is $34.45.
I liked this trade and was happy to see it be the first LEAP trade made.
But there was another trade to be made, as well, that was part of the Option to Profit legacy.
In that trade, the news preceding it wasn’t very good as it involved shares originally purchased on February 2, 2018 at $48.24.
To date, that position, prior to today had generated only $4.43 in option premiums and dividends.
Sure, just $0.25/share but that is for allowing someone the right to purchase shares at $39 for only 5 days.
If the price moves away from me and I’m at risk of losing those shares, then the next step is to roll those contracts over in an effort to get more option premium while trying to ride out the price increase or to select a longer term time frame that would also allow the strike price to be increased.
Those kind of trades require more attention than the LEAP trades, but any opportunity to bring in income from existing positions is always welcomed by me, even as I want to do less and less trading these days.