Does Selling LEAP Puts Work? A Deep Dive Into The Strategy

It is no secret among retail investors that selling LEAP puts is one of the most reliable ways to make money in the stock market over the long-term while also acquiring shares at a discount. In theory, it’s almost too good to be true. You receive a large premium upfront, only buy the stock if it falls to a price you already like, and the trade can usually be rolled or tweaked as needed.

In practice, though, does it really work? Under what circumstances does it make sense for the average investor like yourself and I?

As someone who has sold both short-term and long-dated options for years, I have witnessed firsthand how LEAP puts react in bull markets, choppy markets, and painful drawdowns. This post breaks down the rationale behind the strategy, when it works, when it can burn you, and how you can use it wisely.

Table of Contents

What is a LEAP Put?

Before we jump into the mechanics and logic of selling LEAP puts, let’s first define what one is. A LEAP put is a put option with an expiration more than 12 months in the future. LEAPs have a much higher time value component than short-dated options due to their long duration.

The process of selling a LEAP put means you are agreeing to buy the stock at the strike price anytime before expiry in exchange for the premium paid upfront.

Example:

Price of ABC $100
You sell a 18-month $80 put
Premium received is $12/share
Effective cost basis is $68 (strike – premium)

In this scenario, if ABC trades above $80 at expiry, the put expires worthless and you keep the full premium. If it falls below $80, you are assigned and you buy ABC at the effective price of $68/share.

This is where some investors refer to it as “getting paid to wait”.

Learn The Wheel Strategy and Get Extra 15-20% annually

Learn The Wheel Strategy and Get Extra 15-20% annually

Why Selling LEAP Puts Can Be Extremely Effective

There are a few key reasons why the strategy is mathematically compelling.

Large premium due to long duration

Time value increases with duration. LEAPs are significantly cheaper than weekly or monthly options due to their extrinsic value. For high-volatility growth stocks, LEAP put premiums can range anywhere from 20 to 40 percent of the underlying share price.

That means thousands of dollars upfront per contract.

Your desired entry price is not arbitrary

Instead of waiting to buy the stock at a certain target price, you get paid to commit to that price now. If you only want to own the stock if it falls to a certain price, selling a LEAP put lets you guarantee that price.

High probability of a profit

The majority of LEAP puts will expire worthless because stocks tend to drift higher over the long-run. Even in range-bound markets, time decay works in your favour. The longer the duration, the more time you have for volatility to compress and for the stock to recover after temporary sell-offs.

Highly effective for quality companies

Selling LEAP puts against strong, profitable businesses with durable moats and predictable earnings is a great strategy. Such companies rarely go bankrupt, which reduces assignment probability. If you get assigned anyway, you become a shareholder at an attractive price.

Effective in quiet to moderately bullish markets

During trending up markets or range-bound markets, the long-dated premium gradually decays. This works to the benefit of the seller.

When Selling LEAP Puts is a Recipe For Disaster

It is important to note that the strategy is not risk-free. In fact, it can be a recipe for disaster under the wrong circumstances.

You are taking on equity risk

Selling a put is not a risk-free way to generate yield. It is, at its core, a bullish bet disguised as an income generating strategy. If the stock falls 40 to 60 percent, you lose big. The psychological pain of mark-to-market losses on LEAPs is usually more intense due to the large and early drop in value.

Speculative stocks can collapse and never recover

Growth stocks, speculative tech, EV stocks, microcaps, pre-revenue stocks can all decline 70 to 90 percent in a down market. I have personally seen this with names like AMPX, SERV, as well as several small-cap AI and battery stocks.

If you sell LEAP puts against such stocks, you are assuming the full downside. A premium that seemed like a bargain can be wiped out in a few days.

Margin or large cash reserves are needed

To sell cash-secured LEAP puts, you will need substantial capital. For instance, to sell a single $50 LEAP put, you need to reserve $5,000 in cash in your account. Some brokerage firms auto-assign early if you do not monitor your margin levels.

High volatility

LEAP options contain a lot of extrinsic value, so a sharp volatility spike can cause your short put to instantly increase in mark-to-market value even if the stock price has not dropped much. This can lead to margin calls or forced early closes at a loss.

Assignment can come at the worst time

Early assignment while undesirable is possible. This can happen around dividend distributions or deep-in-the-money scenarios. If volatility increases and you are unable to roll the option near expiry, it can force you to buy shares at an undesired time.

Does the Strategy Work Through Market Cycles?

Bull markets — Yes, it works very well

During sustained bull markets, most LEAP put sellers make solid, consistent returns. Stocks grind higher, volatility contracts, and time decay works slowly in the seller’s favour.

Sideways markets — Yes, it still works

During choppy markets, LEAP puts perform well too. The reason is the long time horizon allows for the stock to oscillate. As long as the underlying stays above your break-even price over time, you still profit.

Bear markets — Risky unless you choose the right stocks

Bear markets are the key inflection point where LEAP put sellers split into two categories:

Sell LEAP puts on only on well-established companies with deep balance sheets
Sell LEAP puts on more speculative names for high premiums

The latter group tends to blow up their accounts. A stock like PayPal or AMD dropping 30 percent and rebounding is entirely possible. A stock like a pre-revenue EV or battery startup getting clobbered 80 percent and remaining down for years is also possible.

The strategy can work as long as you target the right companies.

Realistic Expected Returns

Historically, selling LEAP puts has yielded around 10 to 30 percent in annualized returns depending on factors like:

Volatility of the underlying
Strike distance
Market environment
Rolling effectiveness

The returns are good but comes with full downside equity risk.

Who Should Use This Strategy?

Selling LEAP puts are ideal for investors who:

Want to own the stock long term anyway
Have enough margin or cash cushion
Can stomach drawdowns
Likes systematic approaches
Realize this is a bullish play, not risk-free income
Know how to manage risk, diversify, and avoid high-risk premiums

Selling LEAP puts is not suitable for traders who:

Expect guaranteed income
Sell on highly volatile speculative stocks
Trade on thin margin
Cannot stomach assignment
Get emotional when facing large paper losses

How to Select Stocks for Selling LEAP Puts

A simple heuristic that has served me well: Sell LEAP puts only on stocks you would happily buy 2 to 3 years down the road

Ideal examples include:

Large-cap tech
Profitable mid-caps with strong free cash flow
Businesses with sustainable competitive advantages
Broad market ETFs
Sector ETFs with long-term growth tailwinds

Avoid:

Pre-revenue businesses
High-leverage small-caps
Meme stocks
Extremely volatile stocks
Businesses with suspect financials or deteriorating fundamentals

If the business is not sound, do not sell LEAP puts. The premium is never worth the risk.

Best Practices for Selling LEAP Puts

Sell further out of the money, not greedy strikes

Picking a strike 20 to 30 percent below current price gives you stronger protection. You get meaningful premium while limiting assignment.

Diversify your short LEAP puts across multiple tickers

Never have more than 15 percent of your portfolio tied up in one short LEAP put. Even large caps can suffer steep drawdowns.

Roll early and often

Rolling three to six months before expiry gives you better control over the trade outcome.

Size according to worst case scenario

If the stock price tanks 50 percent, could you stomach being assigned? Can you hold if assigned without blowing up your margin account?

If no, then size down.

Avoid chasing the highest premium names

The highest premiums carry the highest risks. A 30 percent annualized yield is irrelevant if the business goes bust.

Target quality and liquidity

Liquid tickers give you better spreads, easier rolling, and smoother price action.

So, Does Selling LEAP Puts Work? The Honest Truth

To summarize, selling LEAP puts is effective but only when you do so under the right conditions and with the right mindset and behaviour.

It works when you:

Sell only on high-quality stocks
Accept you may be assigned
Size positions correctly
Diversify
Hold through volatility
Manage margin carefully

It fails when you:

Chase premiums
Sell on speculative stocks
Have limited margin
Panic during drawdowns
Relies on the strategy as primary income source
Expect all stocks to recover

Over the long run, it’s a great way to accumulate shares at a discount while also collecting option income. Professional traders and institutional investors use it for exactly this reason.

It’s not for everyone. It takes discipline, risk management, and fortitude to ride out volatility.

Comparison Table: LEAP Puts vs Short-Term Puts vs Buying Shares

Strategy	What It Is	Risk Level	When It Works Best	Pros	Cons
Selling LEAP Puts	Selling puts with 12+ months to expiry	Medium to High	Stable or long-term uptrend	Large premiums, discounted entry, high probability of profit, flexible rolling	Large capital requirement, high mark-to-market volatility, full downside risk
Selling Short-Term Puts	Selling weekly or monthly puts	Medium	Quiet markets or range-bound trading	Faster time decay, more frequent income cycles, smaller drawdowns	Lower premiums, more frequent management, vulnerable to sudden volatility spikes
Buying Shares Outright	Purchasing shares immediately	Medium	Long-term holding with strong fundamentals	Simple, no margin risk, collects dividends, no assignment risk	No premium income, full upfront capital needed, must accept current price

Final Words

Selling LEAP puts is not a free lunch. It’s a systematic way of expressing bullish conviction while also getting paid to wait. Used with the right discipline, it can outperform simple buy and hold. Used carelessly, it can lead to permanent loss of capital.

If you are a long-term investor who loves picking up quality stocks at attractive prices, selling LEAP puts can be a great addition to your toolbox. Just keep in mind that premiums are never free. They are your risk price.

Keep learning: courses on this topic

Self-paced courses to put this article into practice.

Does Selling LEAP Puts Work? A Deep Dive Into The Strategy

What is a LEAP Put?