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You mention the premium which Jim often compares to interest on a loan. This essentially raises the break-even point.

That is indeed how I think about it.

Does it make sense to borrow money to buy a stock?
Only if three tests are met:
* the leverage is cheap...the cost of the leverage is much less than the pretty-darned-sure return on the stock,
* the loan can not be called under any circumstances, and
* the loan is for long enough for the expect return on the stock to be highly likely.

So, does buying a LEAPS contract meet the checklist?

Price?
Interest rates built into many LEAPS are, once again, pretty attractive.
I bought one at an implied 3.7% yesterday.
You don't want to pay 7% interest for a stock rising in price by 6% a year.

Callability?
The options are pretty much entirely uncallable, unless perhaps your brokerage account includes
something ELSE requiring margin, which you exceed, triggering the unwanted sale of your call.

Time frame?
Not quite possible with LEAPS.
Predicting stock prices is almost impossible over something like a one year time horizon.
Valuation considerations are pretty reliable, but they can take quite a while to work out.
That's why I generally figure on holding any LEAPS position for four years. That's usually (though not always) long enough.
Since there are no four year LEAPS, I figure on two two-year ones, budgeting for the likely cost of a roll in the middle.
Other than the unpredictability of companies, the not-yet-known cost of that perhaps necessary future roll is the biggest risk.

Why doesn't everybody do it?
In the past, it's because the interest rates didn't make it worthwhile, which hurt the case for LEAPS.
But mainly it's because a lot of people get burnt using leverage including LEAPS, and this isn't a secret.
The leverage giveth, and the leverage taketh away.
The people who get burnt either pay too much (high strikes are very expensive), or, more often,
choose a security whose returns are not predictable enough.
The rate of growth of the underlying stock is not really all that important relative to its unpredictability.
A modest but predictable growth rate plus a little cheap uncallable leverage can make an excellent return.
The more you think about that, the more you realize that predictability (by you!) is the most important criterion in picking a stock.
The thing that makes it doable is that you don't have to be able to predict ALL stocks, just a few.

Oddly enough, I make substantial use of the leverage of LEAPS, *and* I hold a lot of cash.
On the surface, that's a guaranteed loss.
I do it because the cash has nice optionality.
If something good goes on sale, I can pounce. e.g, I increased my Berkshire holding by 5% last August.
But trying to buy something using leverage (calls or otherwise) during one of those little panics is often prohibitively expensive.
So, I add the leverage when leverage is cheap, and build the long positions when the stocks are cheap, usually being two different times.

Example of predictions:
The trend price of Berkshire, for example, can be pretty much guaranteed to rise about $100 a day in the next five years.
(which says nothing about the price on the day precisely five years from now--just the trend line)
The price can remain quite undervalued for long stretches. Up to five years at a time, sometimes. But almost certainly not more than seven.
And, it's not overpriced now.
If (a big if) you believed those few starting points, it's not hard to calculate whether there is a case for buying a given LEAPS contract today.
Once that hurdle is passed, the biggest residual risk is that the good stock return might take longer than January 2022 (the longest LEAPS contracts available),
and when it comes time to buy more time there may be no LEAPS available, or not at a reasonable price.

Jim
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