Table of Contents LEAPS Trading Strategies Publisher’s Preface How to Use this Book Meet Marty Kearney Introduction: Profits from LEAPS Options Chapter 1: A Brief Review of the Basics Important Terms Differences: Securities Versus Options A Brief History of Options Options Symbols Stock Symbols Meaningful Strikes and Expiration Style Options/Leaps Pricing Self-Test Questions Chapter 2: Why Bother with LEAPS? Getting Time, Doing Time 2 Action, Reaction – Another Leaps Benefit Pros and Cons Self-Test Questions Chapter 3: Using LEAPS in a Gifting Program The Three-Year Plan Self-Test Questions Chapter 4: LEAPS vs. Stock Ownership Limiting Your Risks Delta As A Factor of Pending Expiration The Importance of Setting Targets Pros and Cons Summary Self-Test Questions Chapter 5: Covered Writing with LEAPS Covered Write Strategy Evolving Value Scenarios The Long-Term Advantage Important Features of The Strategy 3 Self-Test Questions Chapter 6: LEAPS Protective Puts and Collars The Inevitable Tax Complication The Protective Put Pros and Cons of Leaps Puts The Collar Strategy Puts As Training Wheels On Your Portfolio Pros and Cons of Leaps Collars Self-Test Questions Chapter 7: A Year-End LEAPS Tax Strategy The Thanksgiving-Christmas-Super Bowl Spread Getting Back Into The Long Stock Position Flexibility in Year-End Strategies Flexibility For Larger Portfolios Self-Test Questions Glossary 4 5 Copyright © 2009 by Marty Kearney Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with the respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the 6 publisher nor the author shall be liable for damages arising herefrom. For general information about our other products and services, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. Library of Congress Cataloging-in-Publication Data: 7 PUBLISHER’S PREFACE What you have in your hands is more than just a book. A map is simply a picture of a journey, but the value of this book extends well beyond its pages. The beauty of today’s technology is that when you own a book like this one, you own a full educational experience. Along with this book’s author and all of our partners, we are constantly seeking new information on how to apply these techniques to the real world. The fruit of this labor is what you have in this educational package; usable information for today’s markets. Watch the video, take the tests, and access the charts—FREE. Use this book with the online resources to take full advantage of what you have before you. If you are serious about learning the ins and outs of trading, you’ve probably spent a lot of money attending lectures and trade shows. After all the travel, effort, expense, and jet lag, you then have to assimilate a host of often complex theories and strategies. After thinking back on what you heard at your last lecture, perhaps you find yourself wishing you had the opportunity to ask a question about some terminology, or dig deeper into a concept. You’re not alone. Most attendees get bits and pieces out of a long and expensive lineage of lectures, with critical details hopefully sketched out in pages of scribbled notes. For those gifted with photographic memories, the visual lecture may be fine; but for most of us, the combination of the written word and a visual demonstration that can be accessed at will is the golden ticket to the mastery of any subject. 8 Marketplace Books wants to give you that golden ticket. For over 15 years, our ultimate goal has been to present traders with the most straightforward, practical information they can use for success in the marketplace. Let’s face it, mastering trading takes time and dedication. Learning to read charts, pick out indicators, and recognize patterns is just the beginning. The truth is, the depth of your skills and your comprehension of this profession will determine the outcome of your financial future in the marketplace. This interactive educational package is specifically designed to give you the edge you need to master this particular strategy and, ultimately, to create the financial future you desire. To discover more profitable strategies and tools presented in this series, visit www.traderslibrary.com/TLEcorner. As always, we wish you the greatest success. Chris Myers President and Owner Marketplace Books 9 HOW TO USE THIS BOOK The material presented in this guide book and online video presentation will teach you profitable trading strategies personally presented by Marty Kearney and the Options Institute Council. The whole, in this case, is truly much greater than the sum of the parts. You will reap the most benefit from this multimedia learning experience if you do the following. WATCH THE ONLINE VIDEO The online video at www.traderslibary.com/TLEcorner brings you right into Kearney’s session, which has helped traders all over the world apply his powerful information to their portfolios. Accessing the video is easy; just log on to www.traderslibrary.com/TLEcorner, click Leaps Trading Strategies: Powerful Techniques for Options Trading Success by Marty Kearney under the video header, and click to watch. If this is your first time visiting the Education Corner, you will be asked to create a username and password. It is all free with the purchase of this book and will be used when you take the self-tests at the end of each chapter. The great thing about the online video is that you can log on and watch the instructor again and again to absorb his every concept. 10