LEAPS (Long-Dated Call)

A single leg, but chosen for depth and time rather than as a cheap directional punt.

Enter with a limit order, since far dated strikes have wider spreads than the active near month. Patience on the fill matters more here than on a liquid weekly option.

You do not hold to expiry to benefit. As the underlying rises the call gains value and can be sold at any time. Many traders treat it as a medium term hold and exit on the thesis, not the calendar.

Plan the exit around your view on the underlying and a stop on the premium. Because the outlay is larger, sizing matters: risk only what you would be comfortable losing in full if the view is wrong.

The great advantage of a long dated, deep in the money call is that daily time decay is small. Most of the premium is intrinsic value, which does not decay, and the time value that does erode is spread over a long life, so the drag per day is gentle early on.

Decay only becomes meaningful in the final weeks, which is usually long after a stock replacement position would have been closed or rolled. This is the opposite of a cheap weekly call, where theta is brutal from day one.

A long dated option has high vega, so its value is sensitive to implied volatility over its life. Buying when IV is low means paying less for the long runway; buying when IV is elevated means overpaying for the same exposure.

Because so much of the premium is intrinsic, the IV sensitivity is smaller in percentage terms than for an at the money option, but it is still worth checking that you are not entering a long dated position at a volatility extreme.

As the underlying rises, you can sell a shorter dated call against the LEAPS to collect premium, turning it into a diagonal or poor man's covered call that funds part of the original cost.

If the position runs deep into profit, roll the strike up: sell the current call and buy a higher deep in the money strike to take money off the table while keeping upside exposure.

As the chosen expiry approaches, roll out to a later month to preserve the long runway, treating the extra premium as a fresh decision rather than an automatic renewal.

A LEAPS position is simply a long call with a distant expiry, so it shares the long call's capped risk and open ended upside. A deep in the money LEAPS behaves almost like owning the underlying, which is why it is used as a stock replacement.

Sell shorter dated calls against it and it becomes a poor man's covered call, a diagonal that mimics a covered call at a fraction of the capital.