Using LEAPS in a concentrated portfolio

Loosely speaking there are two types of LEAPS — deeply ITM reproducing leverage with a hedge, and everything else where the decision is more sensitive to volatility pricing.

You should make yourself aware of how dividends and interest rates cause it to be rational to early exercise American calls and puts, respectively. In a taxable account, this might cause you to pick a later expiration or be less deeply ITM, so you can get a 1 year holding period without running into such issues. Also in a taxable account, if you’re expecting major growth, you might not appreciate the compounding hit, of course (but you could always exercise and hold shares).

This lays out the general framework of how I think about the question. So in some cases, I have traded leaps purely for leverage and bought 30-50% ITM. In some other cases, I’ve bought 50% OTM leaps or nearer to ATM leaps due to the peculiarities of the situation and my expectations of what would happen.

You might look at some of the Pelosi trades, and the Druckenmiller NVDA calls, for some examples. Or maybe replay different decisions you could make when Facebook declined from $370 to $100/share in 2022.