Commentary & Insights, Investing

Why AIM Likes Stocks but LOVES Options (LEAPS)

Posted at April 16, 2018 » By : » Categories : Commentary & Insights,Investing » 2 Comments

The AIM investing method was first developed by Robert Lichello. AIM is the Automated Investing Method which tells you when to buy low, sell high, or do nothing with your investments.

Not only is it a contrarian investing method, it keeps half your investment portfolio in cash. This cash is what you use to buy more of a stock when the prices drop.  (It also provides a protection against risk, since cash is more stable.)

But Lichello used AIM with individual stocks. The major drawback to this strategy is that stock prices are relatively stable. And when they do move up or down, it isn’t usually much of a percent change.

That’s why I have learned how to apply AIM with LEAPS – long term options.  The LEAPS are associated with the same famous stocks but they perform far better with AIM.  I’ll show you how.

The Dogs of the Dow are the 10 highest paying dividend stocks in the Dow. The Dogs stock portfolio is up 53% in 51 months – pretty good. That’s about 1% a month gain. But the same portfolio using LEAPS is up an incredible 358% in the same 51 months!  That’s 7 times better!

There are two reasons for this: First, the LEAPS are much cheaper. For example, IBM stock is about $165 a share. But LEAPS on IBM near that price cost about $16.50 an option. A contract lets you control 100 shares of IBM stock. So buying 100 options (one contract) costs you $1,650.  If you bought 100 shares it would cost you $16,500. So you have much more leverage with LEAPS.

The second reason LEAPS are better with AIM is volatility.  Options go up and down at a much higher percentage than the stock they are for. A good rule of thumb is if the stock goes up 2%, the option will go up 8-10%.

I publish a monthly investing newsletter where I show the results of my Dogs of the Dow portfolio.  Just checking IBM LEAPS prices on the Jan 2020 Strike 165 Call once a month, here’s what I did. I started with 8 contracts which is 800 options.

Jan 2017 – $19.12
Feb 2017 – $24.50 – sold 1 contract
Mar 2017 – $25.96 – sold 1 contract
Apr 2017 – $17.80
May 2017 – $7.76 – bought 8 contracts
Jun 2017 – $8.28
Jul 2017 – $7.95
Aug 2017 – $3.50 – bought 10 contracts
Sep 2017 – $3.20 – bought 5 contracts
Oct 2017 – $4.05 – bought 2 contracts

If you add and subtract all the contracts, I went from owning 7 contracts to owning 32 contracts. I bought low and sold high.

AIM works even if you only check the prices once a month. But one day in October 2017 I read IBM stock was up 10% in one day which is an incredible jump for IBM in one day.

I was curious how much my LEAPS were up that day so I checked. I found out my LEAPS jumped an astounding 140% or went up from $4.05 to 49.30 that day.

So I did my AIM calculations and found out AIM wanted me to sell 13 contracts at $930 a contract

Oct 18.2017 – $9.30 – sold 13 contracts.

Here’s the amazing thing: look at what happened with the portfolio total (value of the LEAPS and cash)

Mar 10, 2017 – $25.96 – owned 7 contracts – Portfolio Value $34,808 (started with $6,000 3 years 2 months earlier)

Oct 18, 2017 $9.30 – owned 32 contracts – Portfolio Value $35,308 (higher than when LEAPS were worth $2,596 a contract.

The portfolio value is close to the same amount but instead of owning 7 contracts we own 32!  When the price of IBM goes up we have more contracts to sell and take profits from.

I guarantee you IBM stock never had dramatic ups and down like the LEAPS – yet the LEAPS are just as safe as IBM stock. LEAPS are always as safe as the stock they represent. So you see why I like options (LEAPS) over stocks.

If you want to use AIM with options to profit even more from the stock market, learn how from one of my books. Here Are the Customers’ Yachts is available on Amazon. Or get the first year of my newsletter for free by requesting that here.

Subscribers to my newsletter are able to email or call me directly to get personal help using AIM.  I’ve helped many people use this method so let’s make it work for you too.

Sincerely,

Jeff

Disclaimer: Jeffrey Weber is not an investment adviser and gives only his personal view and opinion, never making any investment advice or recommendation to buy or sell specific securities. Investors in financial assets must do so at their own responsibility and with due caution as they involve a significant degree of risk. Before investing in financial assets, investors should do their own research and consult a professional investment adviser.

About Jeff Weber

Jeff Weber is an investor, author, and former US Army auditor. He is on a mission to help as many people as possible buy low, sell high, and earn lifetime profits using the AIM system.

Comment

  • Nik Mody

    September 21, 2018 at 12:37 am

    Have you done any research on leveraged ETF such as FAS from direxional 3x. I feel you would be able to improve your profits.I really love your concept of using leaps. I bought 2 of your books on amazon yesterday. Thank you

  • nick kohilas

    December 2, 2018 at 8:56 pm

    I would like to see how this would work in leveraged ETF’s as well… Also, Are there any updated software apps for Aim..? YOu could make one…Id buy it…

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