Ultimate Guide to Generating Income with LEAPS

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Most investors believe they need significant capital to generate income through covered calls. However, LEAPS (Long-Term Equity Anticipation Securities) provide a smarter, more capital-efficient way to achieve the same goal. This blog will cover what LEAPS are, how to use them for consistent income, and actionable steps to apply this strategy to your portfolio.

What Are LEAPS?

LEAPS are long-term call options that expire more than a year from the purchase date. They act as stock replacements and offer similar exposure to owning actual shares but at a fraction of the cost.

Delta Focus: LEAPS with a Delta of 80 or 90 move closely with the stock, mimicking its price movements.
Cost Efficiency: Instead of paying for 100 shares, you can own a LEAPS call for a fraction of the cost.
Leverage Without Excessive Risk: While leverage is involved, using high-Delta LEAPS keeps it manageable.

How to Generate Income Using LEAPS and Covered Calls

Once you purchase a LEAPS call, you can apply a synthetic covered call strategy by selling short-term call options against it. This generates consistent income through option premiums — a technique often referred to as “squeezing the juice.”

Example: Using LEAPS with Apple Stock

Buy a LEAPS Call: Purchase a January 2026 $100 Call on Apple.
Sell a Short-Term Call: Sell a 30-day $225 Call against your LEAPS.
Generate Income: Collect a premium from the short-term call.

This structure offers consistent income while limiting your capital outlay compared to owning the stock outright.

Benefits of Using LEAPS for Income

✅ Lower Capital Requirement: Requires significantly less capital than buying 100 shares.
✅ Higher Return on Capital: Amplifies returns due to lower capital usage.
✅ Consistent Income Generation: Sell calls every month to capture premium income.

Potential Drawbacks and Risks

⚠️ Time Decay: While LEAPS experience slower time decay initially, it accelerates as expiration approaches.
⚠️ No Dividends: Unlike owning the actual stock, LEAPS holders don't receive dividends.
⚠️ Complex Management: Requires regular monitoring and potential adjustments.

Tips for Success with LEAPS and Covered Calls

Choose Quality Stocks: Stick to liquid, stable stocks with strong financials (e.g., Apple, Microsoft, Tesla).
Use High-Delta LEAPS: Select LEAPS with a Delta of 80 or 90 for stock-like behavior.
Monitor Break-Even Points: Calculate your break-even point using an options calculator.
Set Alerts and Circuit Breakers: Create alerts to manage short calls and minimize losses.

Life Improving Tips

Leverage Smartly: Use LEAPS to maximize your return without exposing yourself to excessive risk.
Diversify Your Income Streams: Apply this strategy to multiple high-quality stocks to ensure stable cash flow.
Stay Disciplined: Manage trades using clear rules and avoid emotional decisions.
Invest in Education: Continuously expand your knowledge of options trading to refine your strategy.
Plan for Taxes: Track your trades and understand the tax implications of options trading.

FAQs

What makes LEAPS a better choice than buying 100 shares?
LEAPS provide the same upside exposure with lower capital requirements, allowing you to generate similar returns without tying up your money.
How can I avoid assignment on my short calls?
Assignment is rare. However, managing short calls by rolling them before expiration reduces this risk further.
What if the stock price drops?
Since LEAPS offer leverage, a stock drop will impact your position. However, selling calls can offset some losses by providing consistent income.
Can beginners use this strategy?
Yes! While there is a learning curve, focusing on liquid stocks and applying conservative strategies makes this beginner-friendly.
How often should I roll my calls?
You can roll your calls when they reach 70-80% of the maximum premium to maximize your income.

Call to Action

Want to unlock the full potential of LEAPS?

Subscribe to Mark Yegge’s YouTube Channel for expert insights on options trading.
Download the Free LEAPS Income Strategy Cheat Sheet for step-by-step guidance.
Join the Cash Flow Machine Elite Course to master the art of generating monthly income.

Start your journey to financial independence with LEAPS today!

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Conclusion

Using LEAPS for covered calls is a powerful strategy for generating reliable income while maintaining capital efficiency. With proper risk management, this approach can provide consistent returns, making it ideal for both novice and experienced traders.

Ready to start leveraging LEAPS for passive income? Take control of your financial future today!

Ultimate Guide to Generating Income with LEAPS

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