THE PRO LEAPS PLAYBOOK
LEAPS — long-dated call options, 18 to 30 months out — are the highest-leverage honest
instrument a directional trader can own: stock-like exposure at a fraction of the capital,
with risk strictly defined by the premium. They are also where undisciplined traders go broke
slowly. The difference is gates. This is our mechanical checklist — every rule below runs
in code, nightly, before a name ever earns a contract.
GATE 1 — THE STOCK MUST DESERVE IT
Own-it quality onlyAbove a rising 200-day moving average — no
exceptions, no "it's cheap here." A LEAPS is a 2-year marriage; you don't marry a downtrend.
Liquidity floor: $20M/dayAverage dollar volume. Illiquid stock
means an illiquid chain means the spread eats your edge on both doors.
Dividend yield ≤ 2.5%Calls don't collect dividends — a big yield
is a constant headwind priced against you for two straight years.
The signal comes firstNames reach the LEAPS screen only from the
nightly base scan — proper bases, pivot buy points, accumulation evidence. The stock engine
finds the move; the LEAPS is just how we express it. See
today's scan.
GATE 2 — THE VOLATILITY MUST BE FOR SALE
A LEAPS is mostly a volatility purchase. Buying when implied volatility is rich is paying
retail for wholesale merchandise.
IV rank under 50 — under 30 is the fat pitchImplied volatility
measured against the stock's own 1-year history. Above 50, we don't buy time — we let skew
pay for it (below).
IV/RV checkImplied vs. 21-day realized volatility. Under ~1.1×,
options are fairly priced or cheap. Over ~1.35×, the market is overcharging — switch structures.
The skew alternativeWhen vol is rich but put skew is steep, we
flip the trade: sell the expensive 25Δ put (with a protective wing), and let that premium buy
the call. Same bullish exposure — the fear-premium pays for it. Defined risk, always.
GATE 3 — THE CONTRACT MUST BE BUILT RIGHT
18–30 months to expiryLong enough that the thesis has room to be
early. Time is the one thing you can't roll back into.
~0.80 delta (0.72–0.88 band)Deep in the money. This is stock
replacement, not a lottery ticket — you want the option to behave like shares.
Extrinsic ≤ 10% of the share priceThe "rent" you're paying above
intrinsic value. Past 10%, the decay clock is doing real damage to a two-year hold.
Spread ≤ 10% of mid · open interest ≥ 50You must be able to leave
gracefully. Limit orders at mid or better, always.
Earnings guardNo fresh entries within 10 days of an earnings
report. Binary events are for positions you already own, not ones you're opening.
THE ARITHMETIC THAT MAKES IT WORK
Stock +8% move · 0.80Δ LEAPS at ~20% of share price
→ option gains ≈ 8% × 0.80 ÷ 20% ≈ +32% on premium
Same move, ~4x the return — and the maximum loss is known on day one.
That's the whole reason this page exists: a disciplined stock signal worth +8% becomes a
defined-risk +30% when the volatility gates say the leverage is fairly priced.
MANAGING THE POSITION — THE PART EVERYONE SKIPS
The theta cliff: 9 monthsTime decay accelerates brutally inside
~9 months to expiry. We exit or roll before the cliff — no exceptions, no hoping.
Roll window opens at 12 monthsEvaluate rolling out (and up) while
the contract still has real time value to trade away.
Delta 0.90+ → roll up-and-outWhen the trade works hard, the deep
contract has done its job — bank gains, reset to 0.80Δ in a later expiry, keep the exposure.
+50% on premium → trim or roll · −30% → the ripcordReassess the
thesis mechanically at both thresholds. The ripcord exists because "it'll come back" is not
a strategy with a decaying asset.
RISK, ALWAYS LAST AND ALWAYS LOUDEST
Size every position so the entire premium is money you can lose:
≤1% of account risk per idea. LEAPS feel safe because expiry is far away — that feeling is
how accounts die. The market does not owe your thesis two years of patience.
The nightly engine applies every gate above automatically and the
scoreboard tracks every signal it produces. Watch it work: today's scan →
