David's avatar
$2.2m follower assets
What stops you from buying Leaps now?
Something I've been asking myself since yesterday. I believe good quality companies will be higher in 2024 (60% sure they will be back to ATH) so should I be buying Leaps now and forgetting? If you also think equities will be higher in 2024 what is stopping you from buying Leaps? 🤔
ThomasFJE's avatar
The strong downtrend is. I’ll buy leaps once I see some signs of stabilisation at least
David's avatar
@smh I would agree when it comes to indexes, but its just hard to see how individual tech stocks could go down a lot more, some of these are borderline value stocks!
ThomasFJE's avatar
@avid6ix You’re right! Triggering some of my price alerts right now. Will start out with very small positions though
Preston | Investor Insight's avatar
If you are going to play options, its so important to factor technical analysis into your criteria. Buying something based on low valuation alone is a dangerous game especially as liquidity is being sucked from the market.

Buying when valuation is low and the stock starts to base and reverse trends, that's the time to buy.

This is incredibly important when it comes to options as they bring additional leverage into the equation.

I will NEVER buy a stock in a downtrend until it shows signs of reversal as prices can always get lower regardless of valuation.
David's avatar
@investorinsight Im the least qualified in terms of options/technical analysis, but wouldnt the fact that they are long dated calls mitigate the short term fluctuations?? Would it really make a difference when buying a 2024 call option if the price is 30-50% up from what it is now? Honest question since I know there are a lot of factors that go into option plays
Preston | Investor Insight's avatar
@avid6ix I am going to work on some technical analysis information to help with these type of questions.

I would pose you the question of do you want a 20% coupon at Walmart or 50% coupon?

Ultimately, you are getting a discount but that discount might grow over the next few weeks/months. Does it matter? Absolutely because options are leveraged and you could see the option fall another 50-60% before moving up.

Longer term, will it all work out? Yes, if the stock price goes to your target, but why not wait for a base and reversal to capture the entire discount?

TA tells us when not to buy more than when to buy.
David's avatar
@investorinsight This definitely makes sense. I guess my perspective comes from someone that doesnt know TA but knows that when stocks rebound could do so very very fast, so I would add to your analogy a 3rd option of getting no coupon because you waited a little too much. Having said that I do think its gonna take a while until we see a reversal so you do have a point
Preston | Investor Insight's avatar
@avid6ix With an understanding of technical analysis, the 3rd option is a VERY low probability as when the moving averages start to act as support and we form higher lows and higher highs - you enter on the higher low.

Someone without a strong TA background will be scared to miss a strong entry so they DCA down and ultimately watch their money fall for days/weeks/months before it actually bases.

It pains me to see because let the chart tell you when to buy. Will you buy the absolutely bottom with TA? No way but you will buy when the trend finally reverses instead of DCAing the whole way down causing your average to be way higher than it needs to be.
David's avatar
@investorinsight Your last sentence might as well describe me the last 4-6 months. Might have to take some time to look into at least the basics of TA
Preston | Investor Insight's avatar
@avid6ix I am working on some very helpful TA resources in the near future. Once they are done, I will be sure to share.

If you have any questions, feel free to DM me as TA is what I have spent over 4 years studying every single week.

Here is my formula: Use FA to find my long term stock picks, and use TA to find my entries/exits. You got the FA down, now its just time to grow in TA knowledge.
Jensen Butler's avatar
What makes you 60% sure they will be back to ATHs? Personally just prefer owning shares outright during turbulent times instead of going LEAPS
David's avatar
@jensen Just because the companies I own are tech heavy (a lot of ML/AI involved) and I am insanely bullish of how transformative AI will be. Its hard for me to believe they were so overvalued that with 2+ years of progress in their tech they wont get back to those prices. Also at these prices even if they dont get all the way to ATH I feel like LEAPS would be profitable.

Author

Related