The Real Way to Pick LEAPS Strikes (And Why Most Traders Get It Wrong)

Here's the thing about LEAPS that nobody tells you when you're starting out:

Picking a strike isn't about finding the "sweet spot" or trusting your gut. It's about understanding what you're actually buying, and most of it should be real, not imaginary.

Let me explain.

What You're Really Buying When You Buy a LEAPS

When you buy a long-dated call option (12 to 36 months out, that's what LEAPS means), you're not just buying "the right to profit if the stock goes up."

You're buying two very different things wrapped into one price:

Intrinsic value: The part that's already real. If you own a $170 call and the stock is at $220, you've got $50 of intrinsic value. You could exercise that call right now and convert it to cash. This part doesn't decay. It moves with the stock, dollar for dollar. It's your equity exposure.

Extrinsic value: Everything else. Time value, volatility premium, hope, dreams, fairy dust. This is the part that melts away as time passes. It also swings around when implied volatility changes. It's fragile.

Here's the insight that changed how I think about LEAPS:

For long-term stock replacement, you want to own mostly intrinsic value, not mostly extrinsic.

Think about it. If you're paying $70 for an option and $60 of that is intrinsic, you've got $60 of real equity exposure and only $10 of melting ice cube. That's a capital-efficient stock substitute.

But if you pay $70 for an at-the-money option with zero intrinsic? You own $70 of melting ice cube. Time and volatility are now your main risks, not the stock itself.

The Framework: Three Numbers That Tell You Everything

Every time I evaluate LEAPS strikes, I run three quick calculations. Takes about two minutes. Here's what I'm looking for:

1. Intrinsic Share: How Much Is Real?

Simple math:

• Intrinsic value = Stock Price - Strike (never less than zero)

• Option Price = What the market is asking (use the mid-quote)

• Extrinsic = Option Price - Intrinsic

• % Intrinsic = Intrinsic ÷ Option Price

My rule: I want at least 70 to 85% intrinsic for core LEAPS positions.

Less than that and I'm paying too much for time and volatility, things I don't want to own.

2. Delta: How Stock-Like Is This Thing?

Delta tells you how many shares-worth of exposure you're getting. A 0.80 delta call moves roughly like 80 shares of stock.

For stock replacement, I target 0.75 to 0.85 delta.

Higher than 0.85? You're getting close to just owning the stock, might as well do that. Lower than 0.75? You're giving up too much exposure and accepting more time decay.

3. Elasticity: How Swingy Will This Get?

Here's a number most traders never look at, but it matters:

Elasticity = How much the option's percentage change compares to the stock's percentage change.

Quick proxy: Delta ÷ (Option Price ÷ Stock Price)

If elasticity is low (1.4 or less), the option behaves pretty calmly, stock-like. If elasticity is high (2.0+), you've got torque. That's not bad if you want leverage and you size appropriately. But if you thought you were buying a stock substitute and it's swinging twice as hard as the stock? That's a mismatch.

For core, steady exposure: Keep elasticity at or below 1.4 to 1.6.

Let's Run a Real Example

Say you're looking at a stock trading at $220, and you want a 24-month LEAPS call to replace 100 shares.

You pull up the chain and see three candidates, all in-the-money:

The $160 Call (deep in-the-money):

• Intrinsic: $60 (that's $220 - $160)

• Price: $72

• Extrinsic: $12

• % Intrinsic: 83% ✓

• Delta: 0.86 ✓

• Elasticity: ~2.6 (higher than ideal, but manageable)

• Cost per delta: $83.70

The $170 Call (still deep):

• Intrinsic: $50

• Price: $62

• Extrinsic: $12

• % Intrinsic: 81% ✓

• Delta: 0.82 ✓

• Elasticity: ~2.9

• Cost per delta: $75.60

The $180 Call (less deep):

• Intrinsic: $40

• Price: $53

• Extrinsic: $13

• % Intrinsic: 75% ✓

• Delta: 0.78 ✓

• Elasticity: ~3.2 (getting torquey)

• Cost per delta: $67.90

All three pass the basics, 75%+ intrinsic, delta in the target range. But notice what's happening:

As you move up in strike (less deep in-the-money), you pay less per dollar of delta, that's leverage working in your favor. But you also get more elasticity (bigger percentage swings) and slightly less intrinsic cushion.

My choice here? The $170 call.

It's deep enough to behave like stock, has over 80% intrinsic, and the cost per delta is reasonable. The $160 is great if you want maximum stability, but it's not buying you much more than the $170. The $180 gives you extra torque, which is fine, but only if you want that and size down accordingly.

The Mistakes I See Every Week

Mistake #1: Buying Too Much Extrinsic

New traders love buying at-the-money or slightly out-of-the-money LEAPS because they're cheaper per contract. But you're paying for time and volatility, not equity exposure. If the stock chops sideways, you're watching your money evaporate.

Fix: Go deeper in-the-money. Pay for intrinsic, not hope.

Mistake #2: Buying Too Short a Timeframe

A 9-month "LEAPS" isn't really a LEAPS. Theta decay accelerates in the final six months of an option's life. You're racing the clock instead of letting time work for you.

Fix: Start with 18 to 24 months. That's the sweet spot, lower daily decay, better resilience to volatility swings.

Mistake #3: Ignoring Elasticity and Getting Surprised

You think you bought a stock substitute, but the option is moving 50% when the stock moves 20%. That's not broken, that's elasticity. You just didn't know what you owned.

Fix: Run the quick elasticity calculation. If it's high, size smaller or pick a deeper strike.

If You're Using This for Poor Man's Covered Calls

Same principles apply to your long leg, maybe even more so.

When you're running a PMCC (buying a deep ITM LEAPS and selling short-term calls against it), you want that long call to be stable. That means:

• 0.75 to 0.85 delta (same as before)

• 75 to 85% intrinsic (more is better)

• 18 to 24 months out (gives you runway to manage short legs)

The whole point of the PMCC is to own "almost stock" with less capital, then generate income by selling calls against it. If your long leg is twitchy because you bought too much extrinsic, you're fighting two battles at once.

Pick the right LEAPS strike first. Then layer your short calls (usually 30 to 60 days out, 0.20 to 0.35 delta) based on how much income you want and how much upside you're willing to cap.

The Cheat Sheet (Memorize This)

If you're standing in front of an options chain wondering which strike to buy, here's your decision tree:

For stock replacement:

• Delta: 0.75 to 0.85

• % Intrinsic: ≥80%

• Elasticity: ≤1.6

• Horizon: 18 to 24 months

For PMCC long leg:

• Same as stock replacement

• Then sell 30 to 60 DTE calls at 0.20 to 0.35 delta against it

For slightly levered exposure (you want torque):

• Delta: 0.70 to 0.80

• % Intrinsic: ≥70%

• Elasticity: Can go higher, but size down

• Horizon: Still 18-24 months

If two strikes are close, pick the deeper one unless the shallower one is meaningfully cheaper per delta and you actually want the extra torque.

One More Thing: The 80/80 Rule

If you walk away remembering nothing else, remember this:

If your LEAPS has roughly 0.80 delta and at least 80% intrinsic, you're in the right neighborhood for a true stock substitute.

That's it. Delta around 0.80, intrinsic around 80%. Easy to remember, and it works.

Why This Matters More Than You Think

Here's what I've learned after two decades of doing this:

The traders who struggle with options are usually making one of two mistakes, they're either trading too short-term (fighting theta) or buying the wrong structure (paying for extrinsic when they should be buying intrinsic).

LEAPS done right, deep in-the-money, mostly intrinsic, proper time horizon, are one of the most capital-efficient tools in the game. You get stock-like exposure with 60 to 70% less capital tied up. That frees up cash for other positions, emergencies, or just reducing risk.

But LEAPS done wrong? You're paying for time and volatility, watching your position decay even when the stock does what you expected.

The difference comes down to strike selection. And now you know how to do it mechanically, every single time.

Copy this checklist into your trading journal:

□ Stock price & target horizon (18 to 24 months preferred)
□ Pull 3 to 5 ITM strikes
□ Calculate % intrinsic for each (target ≥70-85%)
□ Check delta (target 0.75 to 0.85)
□ Estimate elasticity (target ≤1.6 for stock-like)
□ Compare cost per delta
□ Pick the strike that balances all three
□ Verify liquidity (tight spreads, solid open interest)

If this clicked for you, send it to someone who's still guessing at strikes. And if you want the full LEAPS series, including PMCC playbooks, expected-move overlays, and monthly watchlists, you know where to find me.

Probabilities over predictions,

Andy Crowder

If you want a deeper dive into the live execution of these mechanics, consider our focused services: Wealth Without Shares (PMCC portfolios), The Income Foundation (Wheel/CSP strategies), and The Implied Perspective (credit spreads (verticals, condors) and tactical hedges).

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Disclaimer: This is educational content only. Not investment, tax, or legal advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.