A potentially 'safer' way to trade weekly options is to buy LEAPS options as a base position and then turn around and sell weekly options against - very much like how one would do when trading a covered call play.
Some investors refer to this type of options trading strategy as a covered write - or a synthetic covered call strategy and they are similar however with this type of trade the required investment - or margin - can be much less. When you are using stock for these types of option strategies, you must put up the entire amount to purchase the stock which can be many thousands of dollars. On the other hand, when you are using options - either monthly options or longer term options such as LEAP options - you investment is capped to the price of the option - which can be much, much less.
Using LEAPS with the new Weekly Options
When you break the word LEAPS down you find that it stands for: 'long-term equity anticipation securities'. These trading vehicles can have life spans from a couple of months to many months and in some cases even years. Another interesting point regarding these particular trading vehicles is that in actuality they are not even 'options' - but in fact they are actually 'securities'.
You can think of using LEAPS as 'leasing' options. You can take advantage of movements in stocks and ETF's using LEAPS - which can be much more affordable and provide a lot more leverage.
AAPL example using LEAPS and Weekly Options.
Let's imagine a scenario where trader A wishes to take up a new long position in the stock AAPL - the only problem is that he doesn't have the amount of cash needed to purchase the stock as it is so expensive. An alternative for trader A is to instead of purchasing the stock - just buy several long LEAP call options for far less money than what it would have cost him to buy the stock - yet he still is able to profit from a move in AAPL - and if purchased correctly, he could profit just as much as if he had the stock and perhaps even more.
Another way to use LEAPS options is use them along with weekly options - using the LEAP as a stock 'surrogate' - creating a trade similar to a covered call play. We use the LEAP in place of the stock position - and then we begin to sell weekly option calls against the LEAP - and this can be done every week for 52 weeks out of the year - generating cashflow while assuming far less overall risk. What is important here is to look at the return on investment for both of these scenarios - and when you do you will find that the ROI on the LEAP weekly options version is much better than the return on the stock based variation.
Some investors refer to this type of options trading strategy as a covered write - or a synthetic covered call strategy and they are similar however with this type of trade the required investment - or margin - can be much less. When you are using stock for these types of option strategies, you must put up the entire amount to purchase the stock which can be many thousands of dollars. On the other hand, when you are using options - either monthly options or longer term options such as LEAP options - you investment is capped to the price of the option - which can be much, much less.
Using LEAPS with the new Weekly Options
When you break the word LEAPS down you find that it stands for: 'long-term equity anticipation securities'. These trading vehicles can have life spans from a couple of months to many months and in some cases even years. Another interesting point regarding these particular trading vehicles is that in actuality they are not even 'options' - but in fact they are actually 'securities'.
You can think of using LEAPS as 'leasing' options. You can take advantage of movements in stocks and ETF's using LEAPS - which can be much more affordable and provide a lot more leverage.
AAPL example using LEAPS and Weekly Options.
Let's imagine a scenario where trader A wishes to take up a new long position in the stock AAPL - the only problem is that he doesn't have the amount of cash needed to purchase the stock as it is so expensive. An alternative for trader A is to instead of purchasing the stock - just buy several long LEAP call options for far less money than what it would have cost him to buy the stock - yet he still is able to profit from a move in AAPL - and if purchased correctly, he could profit just as much as if he had the stock and perhaps even more.
Another way to use LEAPS options is use them along with weekly options - using the LEAP as a stock 'surrogate' - creating a trade similar to a covered call play. We use the LEAP in place of the stock position - and then we begin to sell weekly option calls against the LEAP - and this can be done every week for 52 weeks out of the year - generating cashflow while assuming far less overall risk. What is important here is to look at the return on investment for both of these scenarios - and when you do you will find that the ROI on the LEAP weekly options version is much better than the return on the stock based variation.
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