Last Thursday, July 11th, I sold 100 shares of PayPal (PYPL). In the post reporting that sale I said I’d be back in PYPL very soon. Well I just jumped back in with a LEAP option.
On 8/23/17, almost 2 years ago I bought 100 shares of PYPL at $60 per shares. On 7/11/19 I sold those shares for $120 doubling my money. I said I’d be back involved in the stock so why did I sell in the first place. Well, I sold 100 shares at $120 locking in $12,000 giving me a $6000 profit. I love taking profit but I still want to be in the stock so today I bought a 5 contract LEAP. I really like this option because I took money off the table while having more potential going forward. I bought 5 contracts of the PYPL 6/19/20 $120 Call for a premium of $14. The 5 contracts (100 shares per contract) has me controlling 500 shares of PYPL for a total of $7000. I brought in $12,000 on 100 shares and I’m now controlling 500 shares for an outlay of $7000. If this stock goes up I’ll make more money with my 5 contracts than I would owning 100 shares. Plus I added the balance of the $12,000 ($5000) to my account to trade with.
Buy to Open 5 PYPL 6/19/20 $120.00 C @ $14.00 ($7000)
There are a few reasons why I love this position. #1, I still love the stock. #2, As I write the stock is at $120.60 and the Strike Price is $120. I’m already 60¢ In-the-Money and I have a year for the stock to go up before expiration. #3, This option has a Delta of .59. For every $1 the stock moves my option will move 59¢. My 5 contracts will move much more than the 100 shares with less money invested. My rule of thumb is to get a Delta of at least 50¢. 59¢ is a very nice Delta. Plus, this Delta will go up as the stock goes up.
LEAPS, long term options are the safest way to buy options. Since this option doesn’t expire for another year, I give this trade a Risk Factor 2.
Steve
The Options Coach