The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Options - You Make the Call


Subject:  Re: PROTECTING LEAP GAINS Date:  1/3/2021  6:16 PM
Author:  mathetes Number:  11292 of 11325

DocBoston: hello and I hope my question is considered OK for me to post on this board

The Options Help page might have been more to the point, but this is fine. Keep that in mind for future reference.

I have 2 TQQQ leap positions in a taxable account; 2 contracts each

TQQQ Jan 21 2022 94.0 Call transactions bought 6/24/20 and up 208 %

TQQQ Jan 21 2022 125.0 Call transactions bought 9/9/20 and up 69%

Should I let them ride as long as they are deep in the money [my understanding is they have no time decay risk for now] and how to protect certain amount of gains and at the same time try to reach the 12 month holding period for tax purposes [especially for the 94 call ]

I'm not sure at all what your purpose is in referring to "time decay risk"--with a LEAPS Call, your goal typically is going to be on letting the underlying (TQQQ in this case) grow, with Intrinsic Value growing along with it. And when you own the call, as you do here, you're the one in charge so there's no risk of premature assignment...

So to your question of "protecting LEAPS gains" I'd first have to ask what you expect TQQQ to do between now and Jan of 2022. One sure way to protect any gains is to sell-to-close now, but that has the associated problem of ending any chances of further gain; hence the importance of what your thesis is.

Another thing that can be done at some point--I'd consider this too early--is to convert the position into a Bull Call Spread. You'd do that by selling a Call with a strike somewhere well above the strikes you have, below the market price of the underlying, and receiving a premium for that short Call. If you've taken part in any Diagonals, this is commonly the last leg of a Diagonal, when you establish a short leg with the same expiration as the long. The are times when the strike price of that short leg can be considerably higher than the strike of the long.

Converting to a BCS is, in effect, a way of taking some money off the table. It has the definite effect of limiting any further gains, however, so you don't want to do it prematurely, if at all.

The bottom line: so long as you're confident with the prospects of TQQQ, the usual practice with LEAPS Calls is to let them run; that's the way to maximize gains.

Copyright 1996-2021 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us