Out of My Workhorse LEAPS

Two months ago I knew nothing about Workhorse (WKHS). When I was teaching a class a few of my young students brought the stock up to me. They were in the stock and I was teaching them how to sell Calls against their shares. While doing this I was looking at the candlestick chart and a few more technical indicators. I liked what I saw so I joined them in their venture.

While joining them I was teaching them about LEAPS. I decided to teach them with an actual position. On 7/13, when the stock was at $17, I bought 2 contracts of the WKHS 12/17/21 $18 Calls. They were selling for $8.90 and the Delta was .74. This was a very high Delta! This Delta told me that for every $1 move in the stock my premium would go up 74¢. This is great for an option.

With the stock moving up recently, and up today on a down day, I decided to show my students how the power of LEAPS worked with this position. I also want to teach them that it’s very important to take profit, and not to worry if you don’t always get out at the peak. Case in point, as I write, WKHS is still going up on a down day.

Let’s take a look at how this position did.

7/13/20 – Buy to Open 2 WKHS 12/17/21 $18.00 C @ $8.90 (Delta .74)

9/17/20 – Sell to close 2 WKHS 12/17/20 $18.00 C @ $17.20

Profit +$1660

The first thing to look at is the Return on Investment (ROI). I bought this position when the premium was at $8.90. Today I sold with the premium of $17.20. I made a $8.30 profit. On the 2 contracts, or 200 shares, that’s $1660. This is a 93% return on my investment in 2 months!

Let’s take a look how I would have done if I bought the stock instead of the LEAPS.

When I bought the LEAPS the stock was at $17. When I sold the option the stock was at $27.40. If I bought the stock I would have made $10.40 per share on the trade. That would be a Return on Investment of 61%. Would that have been good? Hell yeah! That would have been great! BUT, with the LEAPS I had a return of 93%. Both are great , but 93% is better!

I tell my students, It’s not the amount of money you make, it’s the Return on Investment!

When it comes to buying a specific LEAPS, my students might buy 1 contract, I might buy 10 contracts and Warren Buffett might buy 1000 contracts, we all make the same Return on Investment. Yes, Warren Buffett will make the most money, but we can only invest what we have ,or what we feel comfortable investing.

Joe, John and Jamie, I hope this helps to teach you the power of LEAPS.

By the way, Workhorse is still going up! lol. But I have an extra $1660 in my mattress.

Successful trading,

Steve

The Options Coach