Articles, Leaps, Options Trading

Leaps Options Strategies: 2 Ways to Profit in A Bullish Market

Written By: Rick Orford
Reviewed by: Mike Reyes
Last Updated April 9, 2023

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an investor considering a leaps option trading strategy

Have you heard about LEAPS options trading strategies and wondered what they are and how they work? Or maybe you found this after reading an article, watching a video about leaps options, or trading in general and wanted something more – maybe something that made more sense to you. 

Even in 2024, buying and selling leaps options is mainly used by hedge funds and institutional investors. Why? Because they know better. Institutional investors know that leaps options offer a way to benefit from time.

In this article, I will go over two leaps options trading strategies: buying deep-in-the-money leaps calls and selling deep-out-of-the-money leaps puts. And I will do my best to explain it in a way that’s as easy as possible. In a way that even my grandmother could understand. Well, that’s the plan. 

I will also show you how to scan for leaps options opportunities using a powerful options scanning tool you’ve probably never heard of.

What are leaps options?

LEAPS options stand for Long Term Equity AnticiPation Securities.  And what makes a leaps option an option?  A leaps option is a call or a put option with an expiration date far in the future.  Some say a minimum of 9 months and more, others say more than 1 year.   Either way, leaps options expire far in the future.  And some leaps options expire as far as 3 years out. However, trading strategies for leaps options vary considerably when we’re talking about an expiration date so far in the future.   For example, with the SPY (the S&P 500 Index ETF), some leaps options expire more than 3 years out. 

Now, you might be wondering why I would want to buy, or sell a leaps option, so far in the future.  Why not sell one that expires this week or next month?  The further out you buy a call or sell a put, the higher the chance you’ll profit.  And the key to a profitable leaps trading options strategy is to tilt the chances in your favor.

SPY – An Investors Favorite

Now for the purposes of this article, I’ll refer to the SPY – or the S&P 500 ETF. But, nothing stops investors like you from considering other companies, like Apple, Google, Tesla, or any other quality company you’d like to own. And also, I’ll assume you’re looking to take a bullish stance on your investing strategy.  In other words, you expect the underlying stock or equity to go up. If you think stocks are going down, stop reading right now, as it’s not for you.

Read more: Worried About A Stock Market Crash? These 15 Dividend Stocks Can Help.

Now,  investors can buy and sell leaps options on virtually any stock, ETF, commodity, or even index.  And, the best investors will say, if you’re going to buy or sell options, do so on only the best stocks. The ones you’d be happy to own. Not on something you heard of in a Reddit group or some strange “yolo feed” that talks about “stonks and tendies.”  Not that it’s all bad… it’s just far too risky – like the casino.  And for me, when it comes to investing, I’d rather have the odds in my favor.  And, the right leaps options offer me the best chances to profit.

Types Of LEAPS Options And Strategies

There are two types of options: call options and put options. Investors can buy and sell calls and puts, and they do, daily.  Call options give the buyer the right, but not the obligation, to buy 100 shares of the underlying security, times the number of contracts, at a set price, at any time up until expiration.  

Buying Leaps Call Options

For example, let’s consider the SPY ETF.  It’s probably the most common ETF that tracks the S&P 500.  If, as part of an investor’s leaps options trading strategy,  they bought one SPY call with a $400 strike price that expires on December 9, they could exercise the option at any time up until December 9 and buy 100 shares of SPY for $400 a piece.  The nice thing about it is that exercising is optional. Because, In this trade, the investor would have $50 of intrinsic value, and if there’s still time before expiration, they could just sell the option and make even more. 

Selling Leaps Naked Put Options

Now, you might also be wondering about selling leaps put options.  Selling out of the money put options is another bullish strategy, and it’s a fantastic way for investors to generate income because the risk is essentially the same as owning a stock.  Put options offer buyers the right, but not the obligation to sell 100 shares of the underlying stock, times the number of contracts, at any point until expiration to the contract holder, or you the put seller.  In other words, the person holding the put option could make the seller buy 100 shares of the underlying stock or equity, times the number of contracts, at the strike price, at any time before expiration.

Leaps Naked Put Option Example

Taking the same example from before, let’s say an investor sold an “out of the money” SPY leaps put option with a $300 strike, with a December 9 expiration. And for that, they collected $21 in option premium.  And on expiration, SPY is trading below the strike at $290, well, the investor can expect to be put 100 of SPY for $300 a piece, even though they are only worth $290. 

In this case, the P&L would look like this:  $21-$300+$290=$11 profit.  And to get the total, multiply $11 by 100 shares to get a final profit amount of $1100.  Not bad. Now, if the underlying security moves further below the strike and it becomes “in the money, ” the investor can always roll the option to a lower strike and further out.  Traders roll options by issuing a “buy to close” close order on their put option and then sell another with a lower strike price. The premium collected from the new option may cover, or at least partially, the cost of purchasing the option back from the market.

Why Do Investors Buy Leaps Put Options

Now, you might wonder why people buy leaps put options. Traders buy leaps put options to protect themselves against potential losses. But, since stock markets usually go up, you can use this to your advantage. Traders will make the most money with this leaps strategy if they sell put options when volatility is high, as it was back in March and April of 2020, and pretty much all of 2022.

Benefits of Buying Leaps Call Options

When it comes to leaps call options, investors typically gravitate toward deep-in-the-money Leaps call options.  This way, they get the ability to control 100 shares of the underlying security, per contract, for a lot less money than owning the underlying stocks or equity outright.  What boggles my mind is that in many cases, deep in the money leaps call options, like those with an 80 or 90 delta, will cost about half as much, or less, than owning the stock outright- with very little extrinsic cost.   

One thing that’s amazing about this strategy – buying deep-in-the-money leaps call options is that the investors’ downside is limited to what they paid for the option.  In other words, you can’t lose more than what you paid for the option. 

Buying A Leaps Call Option on SPY

For example, Alex, the investor, buys 100 shares of SPY for $400 a piece, that’s a $40,000 outlay.  And, let’s take Logan, another investor, who decides to buy a deep-in-the-money LEAPS call option on the same SPY with a $200 strike and an expiration date 3 years out.  The premium for that is $210.  In this example, Logan gets to control 100 shares of the SPY for $21,000.  

Now, in this case, because Logan bought a $200 strike, he gets some downside protection because, if the SPY goes below $200 at expiration (which is unlikely in today’s market, but if it does), his loss is limited to what he paid for the option $21,000.  

But Alex, on the other hand, his loss doesn’t necessarily end there.  If the SPY went below $200, well, Alex would stand to lose more!  For example, if the SPY went to $150, Logan’s losses would be $25,000.  And if it went down to $100, the loss would be $30,000.   

So, by buying a leaps call option, Logan gets to participate in ALL the upside of the SPY over and above the $200 strike price – just like Alex. Only Logan also gets downside protection below $200.  And for that, it costs just a little bit of extra premium.  Alex, on the other hand, got 100 shares and paid full price.  Who’d you rather be?  Alex or Logan?  Let me know in the comments below why.  I love reading and responding to comments!

Benefits of Selling Leaps Put Options

When it comes to leaps put options, many investors sell deep-out-of-the-money leaps put options. It’s also known as a naked put or a cash-secured put.  Either way, it’s a bullish bet with no more risk than owning a stock.   What’s impressive about this strategy is that investors can sell deep out-of-the-money put options, with a 70% or 80% chance of expiring worthless.  And they get to collect some hefty income along the way.

SPY Leaps Put Option Example

For example, let’s take SPY again, and assume it’s trading for $400 a share.  Say, Alex, the investor, sells one naked SPY leaps put option with a $300 strike that expires in 3 years.  And he collects $14 for the option or $1400 for the contract.  That’s income Alex gets to keep.

In this case, because Alex sold the $300 strike, he’s in good shape as long as the SPY stays above $300.  And if the SPY is above the strike at expiration, Alex gets to keep the $14.  Now, if the SPY goes below $300 by expiration, one of two things can happen.  If Alex does nothing, he’ll be forced to buy 100 shares of the SPY at $300 a piece, times the number of put options contracts sold.  Or, Alex can roll his option to a future expiry and recover some or all of his losses.  

How to Roll a Leaps Put Option

If Alex finds himself in a situation where the SPY is below the leaps put option strike price of $300, he can roll the leaps put option.  To do this, Alex will first close out his options contract by buying back the option he sold, in this case, the $300 SPY with the same expiration date.  Alex will have to pay more for the option than he initially received.  Let’s say, for example, the put option now costs $30.  This means Alex’s loss is now $16.  However, Alex can now sell another put option further out and make up the difference.  As a best practice, investors often find it best to wait out volatility.  And, with a leaps put option, that could mean waiting years before closing or rolling the trade.

Best Stocks and ETFs to Trade Leaps Options On

It’s natural to wonder what stocks should be part of your leaps options trading strategy.  For bullish leaps options trading strategies, such as buying leaps calls or selling cash secured leaps puts, the key is to buy and sell options only on quality stocks and ETFs.  Investors who buy leaps call options on poorly chosen companies could lose all their money if the company goes to zero.  And similarly, investors who sell leaps put options could end up underwater if the stock or ETF fell far below the put option’s strike. Remember, buying leaps calls and selling leaps puts are bullish strategies, so we as traders want the underlying securities to go up!  So what are the best underlying equities to invest in?

Simply the Best

Well, I like to start with the dividend aristocrats and dividend kings.  These companies have not only paid a dividend for, well, in many cases well before I was born but, they’ve also increased their dividends consistently, every year for decades. These are companies like McDonald’s which have more than 39,000 locations in more than 100 countries.  Or Proctor and Gamble which sells Gillette, Tide, Charmin, Crest, Pampers, Febreze, Head & Shoulders, Bounty, Oral-B, and many more. When I’m researching these companies, I like to first check .  This is a site I use daily where I can read the latest updates on dividend stocks.  And the Sure Dividend newsletter, their flagship product, sends me monthly buy/sell updates from the 700 dividend stocks they track.  

Read more: Worried About A Stock Market Crash? These 15 Dividend Stocks Can Help

Aside from dividend stocks, you can also buy leaps call options and sell leaps put options on index ETFs like the SPY.  And since it’s an ETF that tracks the S&P 500 index, it actually holds the same 500 stocks on the index.  So, there’s always tons of liquidity available.  

Using an Options Scanner

But, knowing the companies, I like to buy call options or sell put options on is just half the battle.  For this, I use Options Samurai.

With an options scanner, you can set specific parameters to search. For example, in my case, I chose a long call strategy. I asked for options that expire 600 days out, a strike price at least 15% below the current trading price, and an 85 delta or higher. I got an incredible hit for a SPY call option, with a $170 strike and a 100 delta. The call options’ cost is $296.88 at the midpoint. If you add that to the strike of $170, you get $466.88. Also, they’d participate in all the upside while having downside protection below $170. And considering the SPY ended at $466.91, a trader who bought this option at the right time could control 100 of the SPY for no extrinsic cost.

Options Moneyness

Investors love to use the lingo, such as in and out-of-the-money.  But, what does it mean? Regardless of the leaps options strategies investors invest in, they’ll need to know the difference between “in the money,” “at the money,” and “out of the money.”  Knowing the difference between these three will help you make better decisions when buying and selling options.  

In The Money

call option moneyness

Let’s start with “in-the-money” options.  An “in-the-money” option means that the option has intrinsic value.  It’s worth something.  Intrinsic value is the difference between the underlying equity and the strike price. For call options, “in the money means” that the underlying equity trades above the call option strike price.  For example, let’s take the SPY and say it trades at $400.  Any strike under $400 is in the money with a call option.   Put options are the opposite, so if SPY trades below the strike price, it’s in the money.  

At The Money

Next, we have “at-the-money options, ” which have little to no intrinsic value.   For both call and put options, “at the money” options have a strike price around the underlying security price.  Again, with the SPY example, an at-the-money strike would be around $400 because the ETF trades at $400.

Out Of The Money

put option moneyness

“Out of the money” means there is no intrinsic value.  For call options, “Out of the Money” means the underlying equity trades below the strike price.  And for put options, “Out of the Money” means the underlying equity trades above the strike price.  And when an option expires out of the money, it expires worthless, which is perfect for options sellers because they get to keep all the income!


After some time, investors may have noticed that their leaps call options might be worth significantly more than they paid for it.  It’s not unheard of to have the option worth double or triple what you paid before expiration.   

And similarly, for put options, it’s not unheard of that the option price plummets and presents the investor with an opportunity to repurchase it for pennies on the dollar.  But what about liquidity?

In either of those cases, if the call option is far in the money or the put option is far out of the money, the trader will be in a profit position.  However, if liquidity is thin, it might be challenging to close the trade.  For example, no one may buy the call option the trader wants to sell. Or, no one is selling the put option the trader wants to buy to close out the trade.  But there’s always a way.

How to Close a Trade When There is Little to No Liquidity

Remember, with a call options contract, only the buyer can exercise their rights.  So, if you’re a leaps call option holder, you can exercise your rights and call the options.  To exercise a call option, the trader will notify their brokerage, or they may even be able to do it in their online trading account.  

When the trader exercises an “in the money” call option, they buy 100 of the underlying equity, times the number of contracts, for the strike price – which could be significantly lower than the current trading price.  The trader will get the stock or underlying security at a considerable discount. And then, the trader can sell the shares or underlying equity back to the market for a profit.  The profit will be the difference between what the trader paid (the strike price) and the current trading price.  

Exercising a Leaps Call Option Example

Let’s say you bought a leaps call option on the SPY with a $300 strike price, and today, the SPY is trading for $400.  Well, you can exercise your right as a call option holder to buy 100 shares of the SPY for $300 a piece and then sell them back to the market at the market price (which at this moment, could be $400 a piece.)  And the difference is your profit.

Now, if a trader sold a leaps put option, this is slightly different.  They’ve already collected the option premium, the income they earned from selling the put option.  And their goal is for it to expire worthless.  But, if the trader wants to close out the trade, they’ll need to buy the same put option from the market.  To do this, the trader will check the latest bid/ask prices and be careful to set a limit order to buy back these put options.  Setting a limit order limits the price you’ll pay.  Because if you set a market order, you could end up paying a lot more for the option than needed.  For that reason, it’s always best to limit the amount you’re happy with.

Intrinsic vs. Extrinsic Value

Next, we need to consider intrinsic vs. extrinsic value.  Intrinsic value is the difference between the current stock price and the strike price, or how much “in the money” the leaps option is. 

Let’s consider the SPY, and say it’s trading for $400. If a trader holds a leaps call option with a $300 strike price, then there’s $100 in intrinsic value.  And if the strike is $210, then there’s $190 of intrinsic value.

But that’s not all.  We also have extrinsic value.  And calculating extrinsic value is incredibly important so the investor knows how much premium they’re paying to invest in their leaps options trading strategy.  We as traders want to pay as little extrinsic value as possible.  Traders can calculate extrinsic values like this:

We take the underlying security value, say the SPY at $400

Consider the leaps call option strike price, let’s say $210

But to calculate the extrinsic value, we have to consider the cost of the option.  So, let’s consider the leaps call option current value, or the asking price, today it’s $200

Extrinsic value is the underlying security, minus the strike, minus the call option’s current value, also known as the premium.  

So, in this case, the extrinsic value is just $10. Just ten dollars!  The extrinsic value is the extra you, the investor, pay, to control 100 shares of the underlying security.  And in many cases, investors can find 100 delta leaps call options with $0 of extrinsic cost.  In other words, they can control 100 shares of an underlying security for far less than buying the underlying equity outright!

Calculating Returns

Investors calculate returns based on the crystallized amount they receive from their leaps option, divided by what they originally paid.

From the above example, let’s consider Alex and Logan again. And we’ll make up some round numbers to keep it simple.

Remember, Alex bought 100 shares of the SPY for $400 a piece, for a total of $40,000, and Logan decided to engage in a leaps option strategy and bought a call option with $200 strike price, deep in the money – expiring 3 years into the future.  And he paid $210 for it.  This strike also has a 90 delta, which is represented as .9 on your trading platform, meaning for every dollar the SPY goes up, the call option will go up 90 cents.

Fast forward 30 days, and let’s say the SPY had a good month and went up 4%.  It’s now trading for $416.  The call option, with its 90 delta, will go up to $14.40.  Here’s how we calculate it. We take the delta (.9) and multiply that by the $16 the SPY went up. And we get $14.40.  Then we add it to the original cost of the option, which was $210.  That means the option will theoretically be worth $224.40.  Now, one thing we didn’t note was theta. For deep-in-the-money leaps call options, theta will be minimal.  And I’ll cover that in the next section.  

Returns Example

Alex’s return is $41600 / $40000 or 4%

Logan’s return, however, is $22440 / $21000 or 6.9% for the period.  

Putting it differently, Logan got a 72.5% HIGHER return than Alex!  

And if we look at it on an annualized return, Logan would have more than 116% annual return in just one month.  That’s the power of leaps.

The Greeks in Options Trading

Okay, so far in the article, I’ve mentioned Delta and theta.  When putting together a leaps options strategy, it’s essential to know the greeks because, one, most people don’t, and because of it, it’ll give you an edge over the rest.  


Delta tells us how much the option price will go up or down based on every $1 change in the underlying security.  And, delta is usually measured as a decimal, like .35 or .8 or .9.  If you’re looking at a leaps call, for example, one that has an 80 delta – remember, it’ll be expressed as .8. It means for every dollar the underlying security goes up, the option will increase in value by 80 cents.  And yes, if the underlying goes down $1, the underlying security goes down 80 cents.

Delta also tells us approximately the chances it will expire with or without value.  So a leaps option with an 80 delta means there’s about an 80% chance it will expire in the money or with some value.  Putting it differently, an 80 delta means there’s about a 20% chance it will expire worthless.  And a 90 delta means there’s about a 10% chance it will expire worthless.


Theta tells us how much the option will lose in value daily, assuming the underlying security doesn’t change in price.  And theta is expressed as a negative number since it’s the amount the option will lose in value each day. So, say you have a theta of -0.10, that means the call option will go down in price — 10 cents a day if the underlying security doesn’t change – but it will.  So, delta and theta go hand in hand. And as a result, options with a shorter expiry will have a higher theta value than leaps options that expire further out. 


Vega measures an option’s sensitivity to implied volatility.   And vega tells us the change in the option’s price for a one-point change in implied volatility.  And options are more expensive when volatility is high.  Just like when volatility is low, options prices go down.

Let’s say a trader is considering a leaps call option strategy.  The trader wants to buy a leaps call, and the option costs $100, its implied volatility is 20, and it has a vega of .12.   And then, implied volatility goes up from 20 to 22 – a 2.0 volatility increase. To calculate vega, multiply vega by the difference in volatility, which is the amount you add to the call option price.

In this case, the option price will increase 24 cents to $100.24 because .12 * 2 is 24 cents.  And as you may have guessed, with leaps options, because they expire so far into the future, volatility affects them FAR more than options that have a nearer expiry.


Next, we have Gamma.  Gamma tells us the rate of change between an option’s Delta and the underlying security’s price. Higher Gamma tells the amount the Delta could change, even with minimal price changes in the underlying security.  So if you’re buying a call, higher gamma means the call option price will increase if the underlying security goes up.

If your leaps options trading strategy is to buy deep-in-the-money leaps call options, gamma isn’t all that important because it will be a low number.  Gamma is necessary for “at the money” call options because with an at-the-money option if the stock moves just a little and the option is out of the money, it loses all its intrinsic value.


Rho tells us the leaps call option sensitivity against changes in the risk-free interest rate  – the interest rate paid on Treasury bills.  And rho is expressed as the amount of money an option will lose or gain with a 1% change in interest rates.

Now, because Leaps options have a long expiration date, traders will want to consider Interest rate risk.  Rho helps answer whether the interest rate paid on a savings account is better than investing it in the option. So yes, traders who buy LEAPs options need to know this.

Final Thoughts on Leaps Options Strategies

I hope this article gave you insight into leaps options strategies. Let me know in the comments below if you trade leaps options or have any questions about them. I’d love to answer them!

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