Dronamraju Ravi Prakash

Got to love leaps during a bull run. Got into AMD 06 leaps less than 2 weeks back and they are already up by 75%. The underlying stock moved only by 20%.
One key thing i have recognized with LEAP buying is timing. Timing is lot more important when buying leaps than the underlying stock. I have in the past bought leaps for stocks which i thought would do good. The stock actually performed with in my expectations, however the benifits out of the leap strategy were not as stellar.
The key thing i learned from those experiences is about the decreasing time value. Here are few things i look at before buying a call/put leap

1. Look at the time value being paid by in-the-money or at-the-money options versus out of the money options. Frequently, i found that at-the-money options have slightly higher time value but better performance as the stock moves.
2. I prefer not to get into to really short term options. With LEAPs i prefer to time it somewhat in terms of the stock momentum. Watching the attrition in time value because of a flat stock price is not fun.
3. Tend to buy leaps ending in january. Mainly because of the tax flexibility. i have a choice to take the loss/profit in either year and timing coincides.