a call Option that follows the S&P500 over the course of 3 years? That’s a pretty safe bet.
As long as it rises higher than the strike price + premium.
If it just rises (your “safe bet”) as expected (and never far enough above the strike + premium or you didnt exercise), you loose and the contract gets worthless.
Now i havent traded LEAPS yet, but based on what i have learned, i dont understand why someone would sell you such a contract and even if, someone else would love to jump onto that “safe bet”, if it was that safe. That someone will most likely not be you.
As far as i can see, its a bet that the broker who sold you the option was wrong/too low about expected growth.
Thats risky, potentially loosing the whole savings as you paid the premiums. Leverage sounds good when its positive, but also works negative…
As long as it rises higher than the strike price + premium.
If it just rises (your “safe bet”) as expected (and never far enough above the strike + premium or you didnt exercise), you loose and the contract gets worthless.
Now i havent traded LEAPS yet, but based on what i have learned, i dont understand why someone would sell you such a contract and even if, someone else would love to jump onto that “safe bet”, if it was that safe. That someone will most likely not be you.
As far as i can see, its a bet that the broker who sold you the option was wrong/too low about expected growth.
Thats risky, potentially loosing the whole savings as you paid the premiums. Leverage sounds good when its positive, but also works negative…