Money

Riding the Bull Market with Bull-Call Spreads

When it comes to maximizing total return from the market-leading stocks, a well-oiled bull-call-spread option program is one of the very few strategies that can drum up heady short-term returns.

The cornerstone of a high-quality bull-call-spread trade is to use Long Term Equity Anticipation Securities (LEAPS) call options to control the most expensive big-name stocks for a fraction of the price of the underlying share. From there, any number of methods can be adopted to sell volatility back to the market in the form of covered-call premium that not only brings in immediate cash to one’s account, it effectively lowers the cost basis of the LEAPS by the amount of the call sold.

I run the bull-call-spread strategy in a manner that targets getting paid every 45-60 days from selling short-term out-of-the-money calls against long-dated, deep-in-the-money LEAPS calls that expire at least a year out. By doing so, I buy plenty of time for my trades to succeed if my fundamental and technical due diligence pan out. Because I’m buying deep-in-the-money, I am paying for a lot of intrinsic value and very little in time premium. It is how I get paid all year long for being in assets that appreciate by 3-5 times the rate of the underlying stock.

Stocks like Boeing (BA), Adobe Systems (ADBE), Goldman Sachs (GS), Apple Inc. (AAPL), Northrop Grumman (NOC), Broadcom (AVGO) and Mastercard (MA) are just a few examples of the kinds of blue-chip, big-cap stocks that are bearing the torch of the current bull market rally. However, to own 500 shares in 10-12 of these hot names would require about a million dollars, which most retail investors simply do not have on hand. But by buying one-year LEAPS options on each name for a fraction of the cost of owning the stocks outright, an investor can control a portfolio of the same 10-12 heavyweight names for around $100,000.

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