Longterm Options Investments in a down market: LEAPS
Market crashes always present opportunities. In 2020 we have seen a big drop in price for many stocks of famous and well known companies. Many of these companies are experiencing severe losses due to COVID-19 and a few are not, but their price drops are a matter of everything going down and nervous investors selling the stock of profitable companies due to market wide panick. Those companies whose prices dropped despite their continued profits are great buys. However there is another group of companies which have experienced severe price drops and it is unclear when or if ever they will recover. These stocks are a big risk as if they come back they will multiply the money invested tenfold, but if these companies fail and disappear, the money invested will be lost forever.
One way to invest and limit your risk is through LEAPS.
Leaps stands for Long-term equity appreciation securities. These option contracts are much longer then the 45 day expiration most option traders trade. But the same reason we use options for short term trading, mainly limiting capitol exposure paying premiums smaller then the stock price, which still allow you to control the stock and profit from its price movement.
But this is for a longer term. Some companies are doing terrible and their stock price is 20-30% of its all time high. LEAPs allow you to reduce your capitol exposure while making an investment in this companies recovery in 6 months or one year.
Option Alpha publishes a detailed, but brief explanation of this vehicle called LEAPS Option Contracts – A Complete Guide For Traders. Link
Happy trading, study, read, learn and prosper.
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