Thread: Riding the Bull Market with Bull-Call Spreads

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  1. #1

    Default 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 ones 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 Im 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.
  2. #2


    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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    If $100,000 sounds like a lot, then start with $50,000 or $25,000 and buy fewer LEAPS contracts to get acquainted with how the trading strategy works. Take Boeing (BA) for instance. The company has a virtual monopoly on the commercial airplane business other than its one main rival, Airbus. Boeing shares are in a major bullish trend with order backlog going through the roof. That outlook is reflected in sales and earnings.

    On February 1, 2017, with the stock trading at $165, I recommended the Boeing January 2018 $135 Call for $31.00 per contract. We filled that trade. That contract, to be profitable, has to trade at $166 ($135 + $31 = $166). At the same time, I recommended selling a like number of contracts of the Boeing March 17, 2017 $170 Calls for $5.00 per contract, which are about 30 cents away from being executed as of this writing. Shares of Boeing are trading up to $173 as of last Friday.
  4. #4


    If we sell the Boeing March 17 $170 Calls for $5.00 and shares of Boeing close below $170 on March 17, we keep the Boeing January 2018 $135 Calls and pocket the $5 premium. If we divide the $5 into our $31 cost basis, we make 16 over the same time period and go out to April or May and sell more out-of-the-money calls and repeat this trade over and over again, hopefully all year long.

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