Hey everyone, this is Matt from the Sang Lucci team. I have never traded/managed a LEAP before, so this is my first attempt at stacking against my LEAP. This blog denotes my current progress and struggles.
Look at the LEAP
Paul pointed out $Z as a potential LEAP. It was more than 50% off its previous ATH, and there were weeklies to write against the LEAP. As a bonus, I noticed that the premium on $Z weeklies was relatively high, given that the stock has been stuck in a small range while trending down. As per the TTP strategy, I started with ¼ of my LEAP position on August 13. I went long one $Z Feb 80c at $25.50.
I attached AVWAPS and have determined the following potential support and resistance levels over a longer timeframe:
- COVID lows: 96.98
- Recent lows: 86.30
- Aug 5 EPS: 95.05
- Recent highs: 89.59
- May 4 EPS: 105.20
- YTD anchor: 124.15
- ATHs anchor: 119.31
As you can see, there is a ton of overhead resistance. Unfortunately, $Z has continued its downtrend with no signs of ending. It recently broke its 52-week low, which is certainly not bullish. I have considered finding an exit point on the LEAPs while I continue to write and stack cash. I see no reason for locking up a large portion of my capital while slowly bleeding out on a position.
As I started writing spreads to collect premium, I struggled to find a rhythm in $Z. I started collecting premium when I opened the LEAP on August 13, but I was not profitable until August 25. After that, I primarily wrote one lots until I got a better feel for how the underlying stock reacted daily. By September 7, I had stacked $940 against my original LEAP purchase of $2,550. Pretty good for less than a month!
Easy Money? HA!
As I stacked against my LEAP position, I misjudged some put writes that I ended up having to roll out for credit on September 8. This cost $1,101 and immediately wiped out everything I had stacked over the previous weeks. Thankfully, I made this all back by September 17. I began to notice, and Ronchero agreed, that the 21d EMA was a great level to write calls at. So I have incorporated this since.
Adding to the LEAP
On September 27, I added another ¼ position to my LEAP ($Z Feb 80c) at $16.10 for an average price of $20.80.At this point, I had stacked around $1,250 against my original LEAP for 50% total. My goal is to have the entire LEAP position paid off with my writes.
I have noticed recently that ATM or slightly ITM $Z options have a lot of premium, although the underlying stock is stuck in a relatively tight range. For example, last week (September 27-October 1), I was stuck in a 95/90p write for that week. The average premium I had collected was $1.10, and the spreads were priced over $4.00 on September 29. Even though I closed these writes for 50% profit, they ended up going to zero. Imagine writing those ITM spreads near $4. The premium is absurd given the actual price action.
I did not feel comfortable having a half-size position in $Z LEAPS with the current market behavior. It was too much cash locked up. So on October 13, I sold the previously added ¼ Feb 80c position at $19.50 for a $340 profit from my previous purchase. I have stacked a total of $2,101 against my original LEAP position, so it is fully paid for. I plan on holding this LEAP until we break up through the 50d MA with conviction with the COVID lows AVWAP as my next level of resistance: I will look to roll the LEAP up to a new 70 delta position here.
I do not plan on writing much as we head into earnings on November 2.
Total Realized P/L
- Total writes against and around the LEAP position: $2,101
- Total profit on adding and reducing the size of the LEAP: $340
- Long ¼ Feb 80c position at an average of $20.80, completely paid for.