How This Options Strategy Can Profit in Any Market (Selling LEAPS Explained)

[00:02] make money if the market goes up, I can make profit if the market stays flat, and I can even make money even if the market goes down and stays above my So, on trades like this, I can even have like 20 to 30% downside protection.

[00:18] Today, we will explore a simple long-term strategy with a potential of very solid returns. My guest claims he has lost only a handful of several hundred trades with this strategy. Welcome, Ravish Ahuja.

[00:35] Hello, John. Good to be back here. Welcome back. This is the third time we interview on this channel. Let's get straight to the strategy we will discuss today. Give us the 42nd version of it and how it has worked for you. It is a

[00:50] long-term, simple, and easy-to-manage strategy, and I've been doing it for a few years, and I've made several hundred trades using this strategy, and I only lost a handful of trades. Now, there are obviously some risk with it, but the

[01:05] returns are pretty good, and uh I actually learned this strategy from That's interesting. Let's get back to that. But, tell us first a little bit about yourself, especially as an options trader. So, I've been trading options

[01:20] for almost 10 years, and uh I've been trading options full-time for more than 4 years now, and I practice a lot of different kind of theta harvesting strategies, both short-term and long-term, and I've also

[01:33] shared some of my strategies on your channel before, and I also have my own YouTube channel where I share many more strategies. Where are you located? I'm located in New Jersey, USA. And as you mentioned, you've been interviewed

[01:47] twice before on this channel. One video is about your double calendar strategy, and in the other interview, you shared two different low-risk strategy that you

[02:00] have had great success with. But today, we are going to talk about the strategy about selling LEAPS. Let's start with the very basic first. What is a LEAP? So, LEAPS are call or put options which

[02:16] are 1 year or longer in expiration date. And a lot of people like to buy call LEAPS which can be in the money around 70 delta or more as a stock replacement strategy. So, you can get long exposure for a long term to any ETF or any stock

[02:33] of your choice. And those kind of strategies can have like very high returns because if the stock goes up 10%, your LEAPS can go up 50%. But there is also a risk that when you are buying a LEAP, you are paying the

[02:47] theta premium for it. So, if the stock doesn't goes up in your direction, then your LEAPS can go to zero uh by expiration. So, you are selling LEAPS.

[02:59] What are you trying to achieve with this strategy that we will describe? So, instead of sell instead of buying calls, I am selling put LEAPS which are 1 year or longer in expiration. And I can do it

[03:14] on any ETFs. And I can do it on any stocks. And the great thing about this is while it can also act as a stock replacement, it instead of paying theta, I am earning theta. This theta is lower, but still

[03:30] I'm getting a lot of upfront premium which can offset my break even and give me a lot of downside protection. When I make a trade like this, I can make money if the if the market goes up, I can make profit if the market stays flat, and I

[03:45] can even make money even if the market goes down and stays above my strike So, on trades like this, I can even have like 20 to 30% downside protection, so that even if the stock comes down, I am going to be in profit.

[04:01] So, there are two ways to execute this strategy. One is using cash, and the other is using leverage. And when I use leverage, I can make 50 to 100% return on my cash. And uh and that also comes with downside

[04:15] protection, so I'm going to share both the methods with you. and in particular, how you choose your underlying for these strategies. What

[04:27] are the criteria you are using? I typically enter a trade like this after a big pullback. If it is a broader market pullback, I can even do it on ETFs like SPY or triple Q.

[04:41] If it is uh if it is a stock-based pullback, for example, a lot of stocks like Microsoft, Meta are in a big pullback right now. There can also be an opportunity to make trades on those, but I'm not making any

[04:55] recommendations for tickers. It should be something that you would ideally want to own own long-term. Are there other conditions that should be mentioned? Yeah, the main condition is that the stock should have good uh good earnings.

[05:08] It should be a profitable company that I would like to own. Ideally, I would want it to be in a 10 to 20% pullback, where I think that the sell-off is done, and now it can go higher. But in this strategy, even if it

[05:22] does not goes higher, I can still make profit. So, basically, I want to know that if the stock has bottomed. But even if it has not bottomed, this strategy gives me a lot of downside protection, so I don't have to be very

[05:34] Technically, I can even make this trade anytime when I want to. But if I wait for a pullback, it gives me a better cost basis. How far out do you go with your LEAPs? Typically, 1 year because that gives me

[05:49] a sweet spot where I get a lot of premium and also it is tax efficient. If I'm making a trade which is 1 year or longer, and I can let it expire in 1 that way I am going to be paying long-term capital gain tax on it instead

[06:04] of ordinary income tax. What about the delta? The delta is typically 15 to 20 delta and uh it can vary depending on the stock. I also look at what is the price where I would like to buy the stock.

[06:20] For example, a stock was trading at 500 and it has now dropped down to 400. It is in a 20% drawdown. Now, I think while that is a good entry point, I can go out and sell a put at 300. If I would if that is a price I am

[06:36] comfortable with, I can sell it at 300. So, it is a combination of two things. One is the delta, and the other thing is what kind of downside protection I'm getting, and what is going to be the return. If I

[06:49] sell higher delta, I will make more premium. If I sell lower delta, I will downside protection. So, it's a trade-off. I try to find a sweet spot and I can show you exactly how.

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[08:49] Theta live, one trading day, more than 25 traders, live markets. I hope to see you there. So, let's go to Option Strat and try to model a trade. First, I want to select a ticker. Let's say I want to make a trade

[09:04] on Nvidia. Now, Nvidia was trading at 200 a few months ago, and right now it is in a pullback around 183. So, let's say I can go out and sell a put, which

[09:16] is 1-year expiration of March 19th, 2026. And in this case, typically I would first go with, "Okay, what is the price I'm willing to buy this stock at?" From my point of view, I would be happy

[09:30] to own this stock at 150. So, I can go and sell a put at 150, and this will give me uh a lot of downside protection. The It is currently at 23 delta, so which fits within my criteria of 15 to 20 delta.

[09:46] And when I make this trade, I will get $1,545 credit. Now, typically when people sell monthly or weekly put, you will only get a few hundred dollar credit. Here we are getting 1-year full credit

[10:00] lump sum up front. Now, if I'm selling this using cash collateral, my maximum uh loss is going to be about 13,450, and that is also going to be the margin

[10:13] requirement. Now, maximum loss is only going to be 13,000 if Nvidia goes to zero. I don't think there is a possibility of that happening. But, in this kind of trade, if I am use selling a cash secured put, I will need

[10:28] $13,455. And on my cash secured put, I can make 11% return. Now, if I want to sell a cash secured Now, if I want to sell a cash secured put, I 11% return is not optimal for me.

[10:41] So, in that case, I will sell close to at the money. In this case, I will get almost $2,800 credit. I will make 18% return in 1 year. And my break-even price is going to be

[10:54] 152. So, if I'm selling it cash secured, I'm getting 17% downside protection with 18% upside. So, this can be a very good opportunity because I think if I get to own Nvidia

[11:09] at 152, I would be happy to own it long term. But, another way of doing that is where we can significantly amplify this return is that I sell out of the money.

[11:22] And when I sell out of the money, the broker will require very little margin. In this case, I can sell a naked put. Uh selling naked put basically means that instead of posting the full $13,000 cash

[11:36] collateral, the broker will require a small amount of margin for me to sell this put. In this case, if I'm selling 150 put, this case, if I'm selling 150 put, my margin requirement is only $1,500.

[11:48] money put, in this case, the margin requirement is going to be strike price multiplied by 10. So, that means $1,500 margin. Now, in this case, I'm getting well over

[12:02] $1,500 credit. So, if we switch to this mode where we see percentage of uh percent return on collateral, so if my collateral is 1,500 and I'm getting 1,545

[12:14] credit, that means I can make 103% return on my Plus, now I have more downside protection. My downside protection is minus 27%. Break-even price is going to be 135.

[12:30] So, in a worst-case scenario, I will be able to acquire Nvidia shares at 135, which I think is an amazing deal for me. Okay, so you have entered this trade one year one year out. What are your rules for when you get out

[12:46] of it? Do you wait until the one year has passed or you close the trade earlier? So, it depends on a couple of things. For example, I entered this trade on Palantir a few weeks ago

[12:59] Palantir a few weeks ago and uh it is now at 29%. So, in this case, when we say that it's up 29%, that means it has captured 29% of the premium. So, for selling 10 contracts, I received $15,500

[13:13] where my margin requirement was only 11,000. 11,000. So, in one year, my return can be 141% return on margin. So, right now I am in I sold this on

[13:27] So, right now I am in I sold this on February 5th and uh today it's March 16th. So, about five five weeks or so. If in five weeks I'm making 42% return on margin, that can be a good place for me to take

[13:41] that can be a good place for me to take profit. So, 25% of premium or higher can be my first profit target. So, if I want I can sell some contracts here. at what is your price target for the stock itself.

[13:55] Let's say uh in case of Planter, I feel that it can run up to 180. In that case, I can continue to hold. But, what I've seen is most of the But, what I've seen is most of the trades can go to 25 to 30% of the profit

[14:09] uh of the premium easily. Which can be 30 to 50% return on margin. A lot of them go go there fast if you time it right. But, after that there can also be a pullback. So, it's not a bad idea to

[14:24] take off some and uh reenter again if I get another entry later on. What if the price is kind of slowly moving upwards? Not this fast where you can take the profit earlier. What will you do then? How long will you wait?

[14:38] >> I will In that case, I will hold. My typical hold time for most of these target is over three months. Sometimes it can take six months also. But, if something runs up fast in a month, if you make this kind of return, then it is

[14:53] not a bad idea to secure some and you can either go into another opportunity another stock. Or you can re-look for a re-entry in the same trade again after some time. So, but most of the trades I would in In

[15:10] a worst-case scenario, I'm happy to hold this for one year. I don't mind holding Because if I'm going to make 141% return on margin in one year by just making one trade and not having

[15:22] it every day. That is amazing to me. You mentioned management. Do you ever manage these trades? If so, how? So, typically this

[15:34] is not going to require much management because we have 1-year expiration. Uh a worst-case scenario, let's say this stock goes to 110 or lower. In that case, I would be ready to take assignment. If you are not ready to take

[15:50] assignment, the easiest management is to use a stop loss, which can be double of your profit target. So, if your profit target is target. So, if your profit target is 25%, you can use a 50% stop loss. If

[16:03] your profit target is 50%, then you can use a 100% stop loss on your credit. So, either use a stop loss, that's the one way to do it, or be ready to take

[16:15] assignment because my thought process is that, "Okay, in this case, if I get that, "Okay, in this case, if I get assignment for Planters shares at $95 price, I will take it." And then I can go out and sell a long-term

[16:29] LEAPS call on it and turn it into like a kind of like a I call it mega wheel. Where instead of doing it on a monthly basis, we do it on a yearly basis. So far, after making hundreds of such trades, it has never come to that point.

[16:43] trade yet. There have been a handful of trades where I have uh I have exited for a loss where I used a stop loss or my conviction in the stock changed. I no longer wanted it. So, I exited for a

[16:59] long time and moved to a better opportunity. Uh one of the scenario where I kind of regret doing that is I entered a trade like this more than 1 year ago on Micron,

[17:12] MU ticker. So, I sold a put on it and it was in a big drawdown. The stock dropped 20 30%. My trade was in a more than 100% drawdown. And the drawdown is normal for these

[17:26] kind of trades. Not Not most of the trades are not going to go straight up. If you time it right, you can do very well, but I am not perfect at timing. So, a lot of these trades go down a lot before they go up. It's like buying a

[17:40] no guarantee that it's going to go straight up. It's possible that you buy a stock when it's 10% down, it can go down another 10%. So, same thing can In that case, I'm okay holding through the drawdown because I have 1-year

[17:56] runway. Most of the time, the stocks recover by that time. In this case, my in Micron case, the stock went down and I was holding it for several months. Then it recovered, and then I exited at break even. At that

[18:12] time, Micron was at $80. Now, it's at more than $400. So, I should have taken assignment of that if it was possible. But in that case, I exited for a break even. So, my point is that in a worst-case

[18:26] scenario, if I have to take assignment, you want a stock where you are okay to hold it long term, and you would be happy to get it at that price. But if you get assignment, do you then just keep the stocks for their value to

[18:40] grow, or do you try to sell some covered covered leaps or covered calls on them? Yeah, if if I get get assigned, for example, let's say if I get assignment

[18:52] on a stock like Palantir at 95 or Nvidia at 135, in that case, if I'm I think that is going to be like a rock-bottom price. From there, the stock is going to make a good recovery over the next 1 or 2

[19:07] years. So, I'm okay to hold it long term. So, if I get assignment of these shares, my plan is to never sell them. I will hold them forever. You mentioned that you learned this strategy from Warren

[19:19] Buffett. Could you elaborate a little bit on that? So, I heard Warren Buffett speaking at an event where he was talking about selling far out of the money long-term puts. Then I did some research about what they do, and then I

[19:32] figured Berkshire Hathaway, they sell long-term leaps puts on S&P and probably some other tickers as well with multi-year expiration. They sold with multi-year expiration. They sold puts on S&P with 5-year expiration far

[19:47] collateral. And they they got like $5 million in it. So, because when they are doing that, they are selling 20% or even longer out of the money with 5-year expiration,

[20:02] if I'm if they are selling puts five with 5-year expiration, there is very little chance that S&P is going to be down 20% or more 5 years later. Let's talk about risk. What is the worst that can happen with this strategy and this

[20:16] way of trading? The worst scenario that can happen is if you are using margin, there is there are two risk. One is a risk of liquidation. Because when the stocks go down,

[20:30] especially if this go down a lot rapidly, there are going to be multiple rapidly, there are going to be multiple scenarios. One is that the volatility is also going to spike, which is going to increase the premium.

[20:42] Second thing is right now, if I'm making this trade, I'm out of the money, which is why my margin requirement is 11,000 for 10 contracts. For one contract, it would be 1,100. But when it gets close to the money, the

[20:56] margin requirement is going to expand. It is going to double or even triple in some cases. The broker can also choose to increase the margin requirement. So, in that case, you need to have enough cash in your account

[21:10] to be able to cover it. If the margin requirement doubles or triples, you want to have enough cash on the sideline to prevent the risk of liquidation or use a stop loss and exit before a

[21:23] situation like that happens. Or in my case, I am usually ready to take the assignment. So, I will have enough cash available with me to be able to take assignment. Now, to take assignment, I do not need 100%

[21:36] collateral. I can take assignment at 50 uh 50% of the margin. So, for example, if I'm getting in this trade on Planter where my break-even is going to be 94,

[21:49] in that case, I basically need uh $5,000 for one contract to take uh to take assignment. So, I will have that kind of capital now, it might be deployed in other in

[22:04] but I want to be in a scenario where if time comes like that, I will be ready to cover it. As you know, I always ask you to place uh the strategy on a risk profile scale from one being very low risk to 10 being

[22:20] this? I would place it at five because uh if you're using margin, there is always a black swan risk. It works well in a regular market. Even if the market goes down 5%, 10%, it works well.

[22:38] But I don't know if how this would have played out in a scenario like 2008 when uh we got into a recession. If S&P goes down 50%, a lot of these stocks go down So, I have not traded it through a scenario like that. Uh so, I would say

[22:55] that you don't want to over-leverage. You want to be very responsible on how you use margin. So, let's be more specific about what has been your results trading this strategy. You said you've traded it for several

[23:08] years already. Yes, so I've been trading it for several years and I've made almost couple of hundred trades so far. So far, I have only lost maybe a handful of those trades. And if I held those trades long enough,

[23:22] even they would have turned into profit. And so far, I have never gotten assigned on any trade like this. What have been your average annual results with this strategy? It's hard to quantify because it's like a one part of my portfolio

[23:37] where I'm looking to enhance returns. I'm not using a large part of my So, for example, let's say if I have an account with $100,000 that may be invested into any ETFs or stocks.

[23:51] I can you draw use 10 to 20% of that margin to sell additional puts to enhance my to enhance my returns. And I do not need to pay any margin interest on it.

[24:05] is that when you use margin like this you don't have to pay any interest. Let's sum up. How would you summarize this strategy and in particular, what would be your two or three most

[24:19] important takeaways that you would like the audience to remember? I like this strategy because it gives me a lot of downside protection. For example, if I'm buying a stock for Plinter

[24:32] I entered when it was trading in 130s. While that was a low price, but I don't price. So, in this way, I'm basically getting paid a healthy premium to wait for the right price. For me, the

[24:47] right price is under 100. So, if I'm making this trade now I can get the stock either I can get the stock at my desired price or I can earn a lot of premium, which can be like very good returns, right?

[25:00] So, in this case, like a lot of return on margin. So, even after buffer, I can still make a very healthy return on this. And which is why I like this strategy, it requires it don't it don't really require any day-to-day

[25:14] management. Once I make this trade, it is set and forget for me. I don't watch it on a day-to-day basis because it is equivalent to buying and The only thing is that here I'm using some margin. Is it maybe a bit boring

[25:29] when you are selling so far out? Yeah, it is it is boring because there's not it's like watching paint dry, it moves very slowly. And a lot of people will say that in 1 year you are not going to you that theta is going to be very slow

[25:44] perspective. People who do wheel strategy or sell they struggle to make more than 15 to 20% a year. Unless they are selling it on very risky underlyings.

[25:58] if I'm selling cash secured put on Nvidia, I can make 18% return in 1 year with a lot of downside protection. If I'm using margin, I can make 100% return on my margin.

[26:12] Now, you can't make this kind of return easily in wheel strategy. Because in wheel strategy, you are collecting maybe 2 to 3% premium for a And if the stock goes down 20%, now you are left holding the bag.

[26:25] lot, at least I'm going to get it at a good price. You touched on it, but you are trading out many different strategies. How does this one fit with all the other stuff you are trading? And maybe give us a

[26:40] very quick overview of what kind of strategies you are trading. In a previous video, I've explained the barbell strategy where 80% of my capital goes into long-term strategy and 20% goes into shorter term income generation

[26:54] strategy. This is part of my long term strategy This is part of my long term strategy because I like I said, I am using a small amount of margin to enhance the yield on my overall portfolio.

[27:06] So, this kind of strategy works well because if I'm looking to buy any stock and I don't know if right now what I'm getting is the best price. I have a lot of runway to wait for the

[27:19] Let's say if I feel that I want to buy Nvidia at $100. I can sell a put at even $100 which only requires $1,000 margin and makes 40% return on margin in a year. Now, there is extremely low chance of me

[27:35] getting assigned at that price. In that case, I would be happy to keep the premium. So, depending on which stock I'm buying it usually goes in part of my long term strategy where I can stack these trades

[27:49] on different tickers, different expiration dates and even different entry prices because I don't buy all at once. I ladder into it. So, it's like dollar cost averaging. If I want to buy 10

[28:02] all at once. I will slowly average into it. What would be good resources to learn more both about this way of trading and but also options trading in general? There are not a lot of people who use this

[28:17] strategy, so you won't really find a lot of information on it online, but you can learn strategies like this and more on my YouTube channel. And I of course also recommend people to watch the other interviews here on Theta Profit, in

[28:32] particular the two we already have done with the Yu Ravish about the double calendars, but also about the two of your low risk strategies. Thank you very much for joining once more one more time here on Theta Profits

[28:47] and sharing your knowledge. Thank you, John, for having me.