Your First LEAPS Call: A Step-by-Step Walkthrough

Buying a LEAPS call is one of the most straightforward options strategies, but getting the details right matters. This guide walks through the entire process from stock selection to exit.

Step 1: Pick Your Stock

Start with a stock you genuinely understand and believe will appreciate over 1-2 years. Good criteria: market cap above $50 billion (ensures options liquidity), revenue growing 10%+ annually, you can explain the business model in one sentence.

Step 2: Choose Your Expiration

Select an expiration at least 18 months out. Theta decay is gentle at 18+ months, you have room to be early, and you can roll the position before theta accelerates. Avoid buying LEAPS with only 12 months remaining.

Step 3: Select Your Strike Price

This is where beginners often go wrong. The three main choices:

Deep in-the-money (delta 0.75-0.85): The safest approach. You pay more upfront, but the option behaves like stock. A $150 strike call on a $200 stock costs more but captures nearly every dollar of upside.

At-the-money (delta ~0.50): Moderate risk. You pay less but need the stock to move meaningfully just to break even. Half your premium is time value that erodes.

Out-of-the-money (delta 0.25-0.40): The most speculative. Low cost but high probability of losing the entire premium if the stock does not rally substantially.

For beginners, deep in-the-money is the right choice. It reduces the impact of time decay and gives you the highest probability of profit.

Step 4: Size Your Position

Never risk more than you can afford to lose completely. Limit any single LEAPS to 5-10% of your options portfolio. Do not concentrate in one sector. Start with one position before adding more.

Step 5: Enter the Trade

Place a limit order at the mid-point between the bid and ask. Do not use market orders on LEAPS. The bid-ask spread is wider on long-dated options. If the bid is $38.50 and the ask is $40.00, start your limit at $39.25 and adjust gradually. Avoid the first 15 minutes of the trading day when spreads are widest.

Step 6: Monitor and Manage

LEAPS are not set-and-forget, but they also do not require daily attention. Check in weekly.

What to watch:

  • Stock price relative to your breakeven (strike + premium paid)
  • Delta of your position (has it increased or decreased?)
  • Days remaining until the "theta cliff" at roughly 90 days to expiration
  • Any fundamental changes in your thesis

    • When to act:

  • Take profit if the stock reaches your target and the LEAPS has appreciated 50-100%+
  • Roll forward when your LEAPS has 6-9 months remaining and you still like the stock. Sell the current LEAPS and buy a new one with 18+ months remaining.
  • Cut losses if your thesis breaks. Do not hold hoping for a recovery on a fundamentally damaged stock.

    • OptionsPilot can help you track your LEAPS positions alongside your other options trades, showing P&L, Greeks, and time remaining in one view.

    Step 7: Exit Strategy

    Decide before you buy how you plan to exit:

  • Sell the LEAPS contract for a profit (most common). You do not need to exercise.
  • Exercise the LEAPS to convert to 100 shares (rarely makes sense due to remaining time value).
  • Roll to a later expiration to maintain the position.

    • Almost nobody should exercise a LEAPS contract early. Selling it captures both intrinsic and remaining time value.

    Quick Reference Checklist

  • Stock you understand and are bullish on for 18+ months
  • Expiration at least 18 months out
  • Deep in-the-money strike (delta 0.75-0.85)
  • Position size you can afford to lose entirely
  • Limit order at mid-price
  • Weekly monitoring cadence
  • Pre-defined exit rules for profit-taking and loss-cutting