Monday, August 17, 2009

Long LEAP Calls for the Recovery

Since the recovery is currently under way, one profitable approach is to buy LEAP Calls that fit the following criteria:

Stock Selection
  1. Industry poised for recovery, e.g. banks, home builders
  2. Stock doing well for the industry
  3. Next quarterly results > 1 mo away
  4. EMA in a rising trend and MACD leading EMA
  5. RSI is not overbought
  6. Above recent resistance
  7. Check headlines and company announcements

Timing
When there is a broad, steep sell-off that affects all stocks, good or bad, jump on previously identified gems that have seen their LEAP call prices fall.

Option Selection
Buy LEAPS 1.5+ years away (now, Jan 2011), that are 2-3 levels OTM, and whose price < $2.00.

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