Dissecting a Trade

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.

Ouch, but in the bigger picture of trades in L Brands that bad trade has been just a blip and today came an opportunity to scratch back some of what has been lost by making a “DOH” trade.

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.


Our First Trade

I guess it’s at least a little exciting.

That is, making the first official trade on LEAPtoProfit

The only problem is that it’s more of an “OTP Legacy” kind of trade.

That is, it was a trade, in this case the sale of calls on a position that was opened during the days of “Option to Profit.”

Still, let’s dissect out what the thought process was behind this trade.

If you go to “How Does it All Work,” you will see the basic thought processes that are involved in making a LEAP trade.

In this case, Newmont Mining (NEM) was trading at about $38.45.

I looked at the January 2020 options, which expire in about 18 months.

That’s longer than I would generally look, but Newmont Mining is already an old position, going back about 5 years, so what’s another 18 months?

For me, i has clearly been a “Buy and Hold” position that has, to this date, exceeded the S&P performance by about 20% (about 10% when considering dividends).

I looked for a strike price about 10% higher than the current price.

What I received was a premium of $3.85/share, or approximately 10% of the current share price.

To that, I add the imputed dividends of $0.84 over the next 6 quarters, or about another 2%

That means, if the shares are assigned, the return for this trade would be approximately 22% or about 14% annualized.

Maybe that’s not much for some people, but it lets me sleep.

And it just gave me a fair amount of cash.

I can use that cash as cash or I can use it as part of PRIP Strategy if I was still in that asset accumulation phase of life.

The trade looked like this:

To Trade Alert Subscribers it came through as:

OTP LEGACY – STO Newmont Mining (NEM) 1/17/20 $42 calls $3.85 bid

Hopefully, there will be some more trades coming, particularly some new positions either going directly into LEAPS or working our way there through Leapfrogging.

Most Recent Trades



(This page refreshes every 60 seconds)


Trade Types

LEAP         – LEAPS

LEGACY  – Legacy “Option to Profit” Trade

FROG        – Leapfrog trade

DOH           – Deep in the Hole

ST               – Short Term (build-up to FROG and then LEAP)


(July 2018 Trades at a glance)




A Different Way of Measuring Performance

After a hiatus of a year from writing articles for anyone, I recently had the good fortune of getting re-acquainted with some long time readers of these pages.

A new reader was less than welcoming and had some serious questions about performance, which included the use of non-standard metrics, with a particular emphasis on the impact of tax rates.

I’m all about non-traditional, but I bristled a bit when considering the thought of being compared to a standard that no one else was using or to try and normalize individual considerations, such as trading in a tax deferred account versus a taxable account or using a discount brokerage versus a more costly one.

Over the years, I’ve been far more interested in the generation of a return in excess of what the market could offer and was always happy to pay taxes on any good fortune or to take advantage of existing tax laws and benefit from the use of strategic losses.

For me, having retired from a pretty lucrative profession at a relatively early age, “return” was a very tangible concept and not a paper construct.

I wanted and I needed cash. I also wanted and needed it in a reasonably reliable stream.

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