The Buying Low Rule for LEAPs

As presented by Hooper and Zalewski in their book, Covered Calls and LEAPs a Wealth Option, here is the detail of the Buying Low Rule for LEAPs, used in conjunction with the rules for entering a new LEAPs position. Remember, LEAPs can potentially result in returns of 100% per year, meaning a $50,000 investment can replace a $50,000 income.

1. Investment in new LEAPS positions can only be made when a stock's overall or current cycle is increasing or horizontal.

2. Investment in new LEAPS positions can only be made when a stock is in the lower 25 percent of its overall or current price cycle.

3. A stock's current price cycle must have a minimum of $1.50 of price between the upper and lower lines for a position to be eligible for investment. This third rule ensures that there is enough potential upward movement in the stock price to exit the position.