Investing: Options (LEAPS)

Status: Scaffolded - Content pending Last Updated: 2025-12-11

How Options Investing Works

When you request an INVESTMENT trade on OPTIONS, the algorithm:

1. Analyzes the underlying stock using 2-year investment parameters
2. Determines direction (CALL for bullish, PUT for bearish)
3. Selects a 30-60 DTE contract (minimum)

Note: True LEAPS (Long-term Equity Anticipation Securities) are 1-2 years out. The algorithm uses 30-60 DTE as a balance between theta decay and capital efficiency.

Data Collection

Data Type	What We Get
Underlying Price	Real-time snapshot of the stock
Stock Bars	730 days (2 years) of daily candles
Options Chain	Full chain with all strikes/expirations
Greeks	Delta, Theta, Gamma, Vega, IV
Indicators	Full suite on the underlying

Contract Selection Process

Step 1: Direction from Technical Agent

• LONG signal → Look at CALL options
• SHORT signal → Look at PUT options

Step 2: Expiration Filter (Investing)

Style	Target DTE
SCALP	0 DTE
DAY	3-7 DTE
SWING	8-30 DTE
INVESTMENT	30-60 DTE

Why 30-60 DTE minimum?

• Gives time for long-term thesis to play out
• Lower daily theta decay
• Room for the position to develop
• Can hold through minor pullbacks

Step 3: Delta Filtering (Three Phases)

Phase	Delta Range	Notes
Phase 1	0.30 - 0.55	Ideal balance
Phase 2	0.20 - 0.65	Expanded if Phase 1 empty
Phase 3	Valid bid/ask, missing delta	Last resort

Investment Consideration: Higher delta (0.50+) acts more like stock but costs more premium.

Step 4: Mike's Top 5 Ranking

1. Price — Affordable within risk budget
2. Volume — Higher is better for liquidity
3. Theta — Lower absolute value critical for long holds
4. Delta — Closer to 0.50+ for investment positions
5. Open Interest — Minimum 100 contracts

Position Sizing for LEAPS

Risk Amount = Account Size × Risk Percent
Contracts = Risk Amount ÷ Contract Cost ÷ 100

Example:
- Account: $100,000
- Risk: 1% = $1,000
- Contract price: $15.00 (LEAPS are expensive)
- Contract cost: $15.00 × 100 = $1,500
- Contracts: $1,000 ÷ $1,500 = 0.67 → Round down to 0

Note: LEAPS often require larger capital allocation.
Alternative: Consider 2% risk ($2,000 ÷ $1,500 = 1 contract)

Exit Rules

Condition	Action
Underlying hits Target 1	Exit 50% of contracts
Underlying hits Target 2	Exit remaining 50%
Underlying hits Stop Loss	Exit 100%
50% of DTE remaining	Consider rolling forward
NO TIME STOP	Roll or exit based on price/time value

Key Rule: Don't let LEAPS expire — roll forward if thesis intact.

What the Trade Plan Looks Like

Direction: LONG
Underlying: AAPL
Contract: AAPL260117C00195000
Type: CALL
Strike: $195
Expiration: 2026-01-17 (45 DTE)
Entry: $12.00 - $13.00 per contract
Stop: Close if underlying loses $185.00 (below 100 SMA)
Target 1: $20.00 - $22.00 (50% of contracts)
Target 2: $28.00+ (remaining 50%)
Time Stop: NONE (roll if < 30 DTE remaining)
Contracts: 1
Max Risk: $1,200 (1.2% of account)

Selection Rationale:
- Delta: 0.52 (acts like 52 shares per contract)
- Volume: 5,200 (solid liquidity)
- Open Interest: 18,000 (liquid)
- Theta: -0.02 (low daily decay)
- 45 DTE gives time for investment thesis

When to Roll Options

Rolling = Closing current position and opening new longer-dated position.

Roll When	Action
30 DTE remaining	Roll to next expiration cycle
Profit target reached	Take profits, don't roll
Thesis still valid but underwater	Consider rolling down/out
Stop hit	Exit, don't roll

Investment Options vs Trading Options

Factor	Trading (0-30 DTE)	Investing (30-60+ DTE)
Theta Decay	Significant	Minimal per day
Premium Cost	Lower	Higher
Delta Sensitivity	More leverage	More stock-like
Roll Frequency	Rarely	As needed
Capital Requirement	Lower	Higher

Investment Options Risks

Risk	Mitigation
Time Value Erosion	Roll before 30 DTE
Large Capital Tie-Up	Accept or use smaller positions
Gap Risk	Wider strikes, smaller positions
IV Crush	Avoid buying before earnings
Liquidity	Verify open interest before entry