Expiration of the Interactive Brokers (IBKR) December 2023 $80-$85 at-the-money vertical Bull Call debit spread LEAPS at $5.00
Closing Trade
12-15-2023
expiration date: December 15, 2023
Number of Contracts = 1 contract
Just a reminder that for those who weren’t looking, our position in the Interactive Brokers (IBKR) LEAPS expired at its maximum potential profit on December 15, 2023. I am laying out how this trade worked out because I plan to send out many more trade alerts for LEAPS this year.
As a result, followers got to earn $250 for each contract they owned, bringing in a return of 100% in only 9 months. I am pointing this out now just to educate how profitable LEAPS can be when they work.
The brokerage sector had been beaten like the proverbial red-headed stepchild when we added this position last March, with plunging stock market prices and volumes. However, (IBKR) should be at the core of any long-term LEAPS portfolio.
Traders seem to have put brokerages and regional banks all into the same basket. They were dead wrong.
The best time to pick up this position will be during a market meltdown day and the Volatility Index is over $20.
If you are looking for a lottery ticket, then here is a lottery ticket.
(IBKR) is one of the top online brokers, with a market capitalization of $36.9 billion. That has far and away been one of the most sophisticated and conservative risk control procedures out there. If you don’t believe me, just try and sell a naked put short.
The regional banking crisis pulled forward any recession and therefore the recovery.
There will be no interest rate rises for a decade. The cuts will start in June and continue rapidly after that. That’s when the economic data catch up with the reality that is happening right now, which is hugely deflationary.
To learn more about the company, please visit their website at https://www.interactivebrokers.com/
Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
A lot of people ask me about the appropriate size for LEAPS. Remember, if the stock does NOT rise above the upper strike price by the expiration date, the value of your investment goes to zero.
The way to play this is to buy LEAPS in ten different companies. If one out of ten increases ten times, you break even. If two of ten work you double your money, and if only three of ten work you triple your money.
There is another way to cash in. Let’s say we get half of your double in the next three months, which from these low levels is entirely possible. Then you could earn half of the maximum potential profit in months. Then you can decide whether to keep the fivefold return or go for the full ten bagger. It’s a nice problem to have.
Notice that the day-to-day volatility of LEAPS prices is minuscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order in the middle market and work it.
This was a bet that Interactive Brokers would not fall below $85 by the December 15, 2023 option expiration in 9 months.
Here are the specific trades you need to close out this position:
Expiration of 1 December 2023 (IBKR) $80 calls at……...…$6.00
Expiration of short 1 December 2023 (IBKR) $85 calls at...$1.00
Net Proceeds:………….……….………..………….….....................$5.00
Profit: $5.00 - $2.50 = $2.50
(1 X 100 X $2.50) = $250 or 100% in 9 months.
Opening Trade
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
