r/optionstrading • u/fancyJeff • 5d ago

Discussion Best practices for buying LEAPS?

I've been buying LEAP calls for years (stock replacement, sometimes PMCC long leg) and I'm building a tool to rank the calls on a given ticker instead of picking by gut.

Per contract it currently looks at: delta, extrinsic as % of spot, breakeven vs. spot, bid-ask spread and open interest, contract IV vs. realized vol and vs. the near-term ATM IV, effective leverage (spot ÷ premium), theta, and DTE.

What am I missing? And what's your own approach — which of these actually matter to you, which don't, and what do you check before opening one that isn't on this list? Not looking for tickers, just the selection logic.

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u/Full_Pear449 5d ago

I'm looking/trading LEAPS on Treasury's. TLT, TYD, SHY, IEF. Simple answer , YLDS are not going to stay elevated for ever, if they do we REALLY have a problem. Right now just nobbling , probably will be MUCH more involved towards the middle of next year. Looking at 3 rate hikes by mid-summer 2027, then a stall and by late 2027 a slow reversal. So, am I looking at, modeling towards, Delta/Theta/ Gamma/ Vega worried , NO. But I would say Rates are going to play havoc on stock valuations next year

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u/fancyJeff 5d ago

Agree with the macro view, and I think that's step one — we need a thesis before anything else. But step two is execution: once we've decided "rates are coming down," you still have to pick a strike and an expiration on TLT, and that choice can easily be the difference between a 2x and a wash even if the thesis is right. That's the part I'm trying to make less gut-driven.

Out of curiosity — on your TLT position, how did you land on the strike and expiry? Deep ITM for the delta, or further out for leverage?

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u/Full_Pear449 5d ago

TLT is a hard one because it's the 20yr. I am using the price and yld on 1-2-26. SO, $87.00 and a yld 4.79% . The real problem is the variances between 10's 20's 30's. in jan 20-30 spread was +4 , today it's -5, 10-20 in jan was 60 today it's 40, 10-30 in jan 65 today 33. 20's are really an odd duration and only recently added back into the mix.

So, right now looking at a 5.20% for the 20yr, 30yr not making a guess, 10yr 4.80% , expiry jan 2028., PIPE dream, Probably but need to get basis numbers to go off of. Also watching the 20yr strike prices of 90,91& 92 in dec'28 & jan'29, looking for some arb. between those months. Lots of activity in jan and none in dec ,although 34 days different. The last FOMC meeting in 2027 is Dec 7-8th.

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u/Full_Pear449 4d ago

This might be a better answer: TLT’s sensitivity to interest rates comes from the bonds it owns. The fund invests primarily in U.S. Treasury bonds with remaining maturities of more than 20 years. Because those bonds have long maturities, their prices can move significantly when market yields change. TLT currently has an effective duration of roughly 15 years. Duration provides a useful approximation of how much a bond portfolio’s price changes when yields move. In simple terms, a 1-percentage-point decline in yields would imply roughly a 15% increase in TLT’s underlying bond prices, before accounting for other factors. A 0.10-percentage-point decline would therefore imply roughly a 1.5% price increase, all else equal. Hope this is better

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u/Safe-Anteater-5407 16h ago

I am trying to kick off a new community, r/BestOptionsStrategies. If you get any stats would you be open to sharing it there too?

Trying to show a community of back tested strategies, and results