Bad LEAPS Construction ... Bad LEAPs ... Bad ... Sit.

As pointed out by Hooper and Zalewski in their book, Covered Calls and Leaps a Wealth Option, "there are two distinct occasions when the bottom 25 percent of a current rising or horizontal cycle is, in fact, a very poor place to construct a position."

1. The Bottom of a Current Rising Cycle That Is Part of a Longer-Term Downward Cycle
2. Current Cycles That Are Close to the Yearly High

As it relates to point one, always check the long term cycle. The stock could in fact be in a prolonged downward cycle and therefore, not an optimal investment. Make sure to check the one-year price chart, draw in the trend lines, top first and then bottom for a downward trend, in order to verify the cycle. A stock typically has broken out of a downward cycle when it has substantially broken the top downward trend line and continued up for a number of months ... at least three typically.

Number two essentially means do not buy a stock that has ascended in a straight stair fashion to its yearly high. If it has gone straight up and you are now close to a 52 week high, look elsewhere.

Again, all of this is covered in a great book on option writing, Covered Calls and LEAPS, a Wealth Option.