Jeff Weber is on a mission to help people become successful AIM investors. Here is a recent email exchange between Jeff Weber (Owner of JJJ Investing Services) and one of our subscribers named Charles. We are sharing it here so you can learn more about Automatic Investment Management (AIM) too.
We have made some edits for clarity and easier reading.
Dear Jeff: I have read your [free] PDF book and just bought and read your 60-page 2017 book Here Are the Customer’s Yachts. On 4/1/19 I bought 10 Qudian (QD) Jan 15 2021 5.0 calls @ 2.1, sold 6 on 5/2/19 @ 4.3 for a $1300 profit. Still have 4 LEAPS left with a paper profit of over $500.
[LEAPS are Long-term Equity Anticipation Securities, otherwise known as long term stock options].
Charles, having only 4 remaining options is too few contracts to do AIM effectively – I recommend you sell your remaining 4 and combine that money with other money to buy at least 12 contracts on another LEAPS and do AIM with the new LEAPS.
On 4/26/19 I bought 10 Encana (ECA) Jan 15 2021 8.0 call @ 1.6 and on 5/30/19 bought 7 more @ .8 for a total of 17 LEAPS. I’m sitting on a paper loss right now but I have followed and traded Encana for several years and feel confident it is a solid company with lots of assets. I’ve been playing the markets for 30 years now. Thought you might find all of that interesting. Now for the questions.
Charles, ECA is perfect AIM place to put your sell money from 4 QD LEAPS – ECA is at its 52-week low almost: 52-week high $14.28 – 52-week low – $4.63 – current price $4.67 – so sell the 4 QD LEAPS at slightly below current theoretical price of $3.45 = $1,380 – buy 12 ECA Jan 2021 Strike 8 LEAPS at limit buy price of $.60 ($60 a contract – add remaining cash to EnCana cash amount = remaining cash is – $660 – be glad to show you how to redo your SS after you do the trade!
I understand that at the end of the year I should sell the 2021 ECA LEAPS and roll them over into 2022 ECA LEAPS. Should I take all the proceeds of the sale and buy 2022 8.0 LEAPS or should I buy slightly out of the money as I did initially (whatever price that might be)?
Charles, on rollovers you wait till you are about to rollover to next years LEAPS – then you look for a new Strike Price on your Call that is close to the current stock price of EnCana (ECA) – it might still be the strike 8 but that is unlikely – you might have to go to a little higher Strike Price to be able to buy at least 12 or so contracts.
I don’t think either of your books addresses this question (after you sell LEAPS what do you buy?). I would like to see a spread sheet showing the leap rollover process.
Charles, I’m attaching a rollover SS I just did for an investor. He owned the June 2020 FB Strike 245 Call – it started at $14,800 and finished Friday at $22,965 for a nice $8,165 profit. So we rolled the entire same amount $22,965 into the Jan 21 Strike 245 – it worked out to use the same Strike Price in this case. I always re-figure the Cash/LEAPS ratio back to the 50-50 ratio as close as I can – so you see he starts the 2021 LEAPS with $12,675 LEAPS & $10,250 – that’s close enough to 50-50 since I use a bear strategy when necessary.
Also, is it okay to buy stock LEAPS in the first half of the year if the target stock hits a new 52 week low halfway through the year?
What I do is readjust the cash- LEAPS ratio – here’s an example from IBM: I attached another SS showing this.
After big drop had $5,432 LEAPS, $17,393 Cash & 7 contracts – after adjusting had $11,640 LEAPS, $11,185 Cash & owned 15 contracts (added 8 contracts at bargain price) whenever you readjust LEAPS/Cash ratio you use the new LEAPS amount ($11,640) as your new Portfolio Control amount – same as you do with any initial buy. You just make a market buy at the new low price!
By the way I never paid the ask price, always put in a bid in between the bid and ask prices. Sometimes the spread is ridiculous. Do you get a lot of emails/feedback from your subscribers? I will be buying your new book when it comes out. Thanks!
Charles I always tell my people to find the theoretical price which is almost always the midpoint between the bid and ask – so if Bid is $2.00 & Ask is $2.50 – I know the most current accurate price for the LEAPS is in the middle so in the case it’s $2.25. So if I was telling someone to put in a limit buy when theoretical price is $2.25 I’d tell them to use $2.20 or maybe $2.15 for their limit buy.
Did reading this email exchange help you to understand more about AIM with LEAPS? Let us know with a comment below. Thanks for visiting our blog at JJJ Investing Services.
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.