Stock LEAPS are long-dated call options that give investors the right to buy shares at the same strike price until a specific expiration date. They provide leveraged exposure to a stock’s price movement, potentially boosting returns, and many are looking for the best stocks for the LEAP strategy. Let’s look into some of them below.
Best Stocks For Leaps
Apple Inc. (NASDAQ: AAPL)
Apple currently sits atop the totem pole of the consumer tech sector.
The information technology giant is famous for its acquisitions, with CEO Tim Cook saying Apple acquires a new company every three to four weeks.
Recently, the company acquired the video compression startup Waveone, adding to the list of over 100 companies currently under Apple’s umbrella.
Apple’s domination of its industry has helped the company gain income stability and steady financial growth, making it great for a LEAP strategy.
In fact, the company reported staggering revenue of $387.5 billion in 2022, which is a 2.44% increase year over year.
Before that, in 2021, Apple recorded a 33% increase in revenue from 2020 which is $365 billion.
Additionally, volatility is another important consideration when selecting stocks for a LEAP strategy.
Implied volatility is a measure of the expected volatility of a stock, which can help you assess whether it’s a good fit for your strategy.
If a stock has high implied volatility, it suggests that the market anticipates significant price movement in the future. This can be highly beneficial for a LEAP strategy because a long-term option can capture that price movement over time.
And according to statistics provider, Volafy, Apple has an implied volatility of 27.3%.
Also, considering its stock price, AAPL is on the rise and has reported a 20% increase in its stock price this year alone.
If the price rises continuously, investors can reap the benefit of their option strategies sooner than later, depending on their strike price.
Microsoft Corporation (NASDAQ: MSFT)
Blue-chip stocks like Microsoft are perfect for the LEAPS strategy.
Microsoft has remained a household name through its software products and lead operating system. It has also reported steady financial growth over the years.
In fact, last year, the company reported a 10% increase in revenue, with a gross profit margin of 66.16%.
The company also estimates a 5.39% increase in its sales earnings in 2023 which translates to $208.97 billion.
MSFT has a market cap of 2.09 trillion, with the stock trading at about $280 and implied volatility of 30.5%
The stock price has gone up 16% from the start of the year till date, and with the anticipated increase in sales and strong fundamentals, it might be a great option for your LEAP strategy.
Amazon Inc. (NASDAQ: AMZN)
Dubbed the number one online retailer, Amazon’s market cap has hit the trillion dollar mark making it one the biggest companies by market cap in the world.
The online retailer also dominates the tech space through Amazon Web Services, which has become the framework for many software products diversifying the company’s interests and racking profits.
In 2022 Amazon reported $514 billion in revenue, experiencing a 9.4% growth year-over-year.
The company has a gross profit margin of 43%, and with its strong fundamentals, AMZN is currently trading at $99 as of March 2023.
AMZN has already had an interesting year, with its stock price up 16%. And according to Volafy Amazon has an implied volatility of 40% which might just make it an option your LEAP strategy needs.
Alphabet Inc. (NASDAQ: GOOGL)
Google’s parent company, Alphabet Inc., is an American multinational conglomerate specializing in Internet-related services and products.
The company was founded in 2015 as a holding company for Google and its various subsidiaries.
Alphabet is one of the world’s largest technology companies, with a market capitalization of over $1 trillion as of March 2023. It operates in multiple business divisions, including Google, Other Bets, and Corporate.
The company is highly profitable, consistently reporting revenue growth every year at a year-over-year rate of 9.78%.
In 2022, it generated $282.24 billion; analysts predict it will boost that figure to just under $300 billion this year.
Alphabet has had a strong year, with share prices always selling for around $100. And with Google’s well-publicized investments in AI technology, the year can get even better for the company.
Furthermore, GOOGL has an implied volatility of 35.06%, making it an excellent option for LEAPS.
Tesla, Inc. (NASDAQ: TSLA)
Founded in 2003 by Elon Musk and four others, Tesla is an American electric vehicle and clean energy company.
The company has a market cap of $602.48 billion, making it one of the most valuable automakers in the world.
In fact, several organizations have named the business among the most inventive in the world, and its electric vehicles are regarded as transforming the auto sector.
Tesla has experienced significant growth in recent years despite operating in a highly competitive and rapidly evolving industry.
In 2022, it withstood challenges such as supply chain constraints and regulatory hurdles to generate a revenue of $81.46 billion.
Tesla boasts a year-over-year revenue growth of 51.35%, and experts estimate it will increase its earnings by 25.77% this year.
The company also reports a gross profit margin of 25.60% and has an implied volatility of 68.50%.
Tesla has had a solid start to the year, reporting impressive first-quarter sales in China. As of early March 2023, its stocks sold for roughly $180.
Meta Platforms, Inc. (NASDAQ: META)
Formerly known as Facebook, Inc., Meta Platforms, Inc. is an American technology company owned and controlled by Mark Zuckerberg.
Meta Platforms is one of the world’s leading technology companies, as evidenced by its market capitalization of $1534.11 billion. It employs over 80,000 people across the globe.
It operates from multiple divisions, including Facebook, Instagram, WhatsApp, and Oculus.
The Facebook division includes the company’s flagship social networking platform. Together with Instagram and WhatsApp, the company has billions of users globally.
Oculus, on the other hand, is a virtual reality company that produces hardware and software for VR experiences.
The company generates significant revenue from advertising, mainly through its Facebook and Instagram platforms.
Analysts expected it to improve on its 2022’s revenue figure of $116.61 billion by about 5% this year.
Meta has always maintained a substantial competitive advantage over its rivals, and with TikTok facing a US ban, that advantage may increase.
Its stock price has already shown a 20% increase in the last month amidst the congressional hearings.
META has an implied volatility of 44.65%. As of March 2023, its share price was roughly $200.
Johnson & Johnson (NYSE: JNJ)
Johnson & Johnson is a multinational corporation specializing in healthcare products and pharmaceuticals.
The company, founded in 1886, is an embodiment of sustainability, existing through three different centuries.
Johnson & Johnson has a diverse portfolio of products, including medical devices, pharmaceuticals, and consumer health products. Some of the company’s well-known brands include Band-Aid, Tylenol, Neutrogena, and Johnson’s Baby products.
As a household name, Johnson & Johnson is well-positioned to withstand any emerging competition and see long-term growth.
Also, with the FDA rumored to authorize new rounds of covid booster shots, analysts opine that the company’s earnings and share price may experience a significant increase.
Johnson & Johnson has an enterprise value of $416.41 billion with a market cap of $398.97 billion.
The company has a long history of paying dividends, recording 60 years of dividend growth. It currently has a dividend yield of 2.96% and an annual payout of $4.52 at a ratio of 43.80%.
It has an implied volatility of 20.52%, and its stock price was roughly $150 in March 2023.
Procter & Gamble Co. (NYSE: PG)
Procter & Gamble Co. (P&G) is an international consumer goods corporation headquartered in Cincinnati, Ohio.
The company was founded in 1837 by William Procter and James Gamble and has since grown into one of the world’s largest and most successful consumer goods companies.
Today, P&G operates out of five main divisions: Fabric & Home Care, Baby, Feminine & Family Care, Beauty, Grooming, and Health Care.
P&G is an established company with strong brand recognition. Its products are sold in more than 180 countries, making it a global leader in the consumer goods industry.
It is known for its extensive household, personal care, and hygiene products portfolio, including brands such as Tide, Crest, Gillette, Pampers, and Olay.
The company has a market cap of $346.13 billion and an implied volatility of 21.8%. In 2022, it generated $80.19 billion in revenue.
Like Johnson & Johnson, Procter & Gamble has a long history of paying dividends. It reports 66 years of dividend growth with a yield of 2.49% and an annual payout of $3.65.
Visa Inc. (NYSE: V)
Visa Inc. is a global payments technology company facilitating electronic transactions between consumers, businesses, and governments worldwide.
Its payment network allows cardholders to purchase at merchants worldwide using Visa-branded debit, credit, and prepaid cards.
The company operates in over 200 countries and territories, connecting consumers, merchants, financial institutions, and governments to enable secure and efficient electronic payments.
Visa strongly focuses on innovation and has invested in several new payment technologies, such as mobile payments, contactless payments, and digital wallets.
The company has also launched initiatives to expand financial inclusion and improve access to electronic payments in emerging markets.
With a gross profit margin of 97.58% and a market cap of $454.58 billion, Visa has strong underlying fundamentals.
The company records year-over-year revenue growth of 18.49%. It also pays a dividend, reporting 14 years of growth.
All of these, coupled with an implied volatility of 26.8%, make it an excellent stock for LEAPS.
Are Stocks for LEAPS a Good Investment?
LEAP stocks are attractive investments for options trading, as they offer extended expiration dates, providing investors with more time to generate investment returns.
Buying LEAPS calls allows for leveraged exposure to a stock’s price movement, allowing investors to potentially make more money with a smaller investment.
However, it’s important to note that if the underlying stock doesn’t reach the strike price by the expiration date, investors can lose money, as the call options may expire worthless.
Hedge funds and individual investors can use LEAPS as an alternative to stock options with shorter expiration periods.
Additionally, buying LEAPS stocks can be a strategic way to hedge long-term positions, manage risk, and generate income. This versatility makes them an appealing investment choice for those seeking diverse portfolio strategies.
Stocks For Leaps FAQs
How Do You Pick A Stock For LEAPS?
Picking a stock for leaps involves a range of things including the stock’s fundamentals, implied volatility, and liquidity. This means that you need to focus on stocks that have a high trading volume. That’s because if a stock has a low trading volume, it will be harder to trade in and out for it.
What is The Best Delta For LEAPS?
By the looks of things, the 70 or 80 range is a good delta for LEAPS.