Reading Cheap LEAPs
Cheap LEAPs is a weekly scan for 14-20 month calls where the math actually works: implied vol is in the bottom quartile of its 1-year range (so the contract is genuinely cheap), the company has solid SEC fundamentals (so time is on your side), and the stock has pulled back 25-50% from its 52-week high while staying above its 200-day moving average (so you're buying weakness within a trend, not catching a falling knife). When all three stack, the position has two ways to win — price up (delta) AND vol expansion (vega) — and the entry premium is the cheapest it'll be all year.
The three independent edges
Most LEAP strategies optimize for one edge — either timing the bottom (technical) or finding deep value (fundamental). Cheap LEAPs requires ALL THREE to align: low-IV-rank + solid fundamentals + healthy pullback. The reason is mathematical: any single edge in isolation has 50-55% win rates; stacking three independent edges multiplicatively pushes you toward 65-70% on a long-term sample, which is enough to overcome the 100%-loss risk per position with disciplined sizing.
Why vol is the dominant edge
For a 25-delta 18-month call, the position is approximately 70% vega-driven and 30% delta-driven at entry. That means a single point of IV expansion is worth more than a single point of underlying move. Buying when IV is at a 1-year low isn't about timing the bottom of the stock — it's about buying vol when nobody else wants it. The vol expansion alone often delivers 30-50% returns before the stock has done much.
Fundamental quality is your TIME insurance
A LEAP is essentially a bet that the company will exist and be worth more 18 months from now. If revenue is growing, op income is positive, and there's no burn-rate risk, time is on your side. The 18 months will pass; the stock will have opportunities to rally. If the company is melting (declining industry, balance sheet stress), time is your ENEMY — every day brings closer the point where the LEAP expires worthless. The quality score isolates the durable businesses.
Setup = where you enter, not why
The setup score (20% of the composite) is intentionally smaller than IV rank (40%) and quality (40%). Reason: timing the BOTTOM precisely doesn't matter much for an 18-month position. What matters is that you're buying weakness within an uptrend (-25 to -50% off ATH AND above 200dma), not chasing strength near all-time highs. The setup filter exists to prevent buying at structural tops; it's not trying to nail the exact pivot.
How to use the page
- Skim the prose summary for the week's context.
- Read the top 2-3 picks carefully. Composite ≥ 70 is rare and worth highlighting; ≥ 80 is portfolio-grade.
- For each candidate, glance at the Why line — the routine surfaces the specific fundamentals (revenue growth %, margins, runway) that drove the quality score.
- Check the Performance tracker. Picks that have already moved +30-50% may be late entries; picks that are -10-20% might be better entries if the thesis is still intact.
- Size conservatively. 1-2% of portfolio per pick is the standard. Don't concentrate.
What this is NOT
Cheap LEAPs is a long-vol + long-quality strategy, not a trading signal. It assumes you can hold for 6-18 months through drawdowns. If the stock craters another 30%, your LEAP will be down 60-80% mark-to-market — that's normal for the strategy, NOT a stop-loss. Cut only if the FUNDAMENTAL thesis breaks (revenue collapses, margins implode, accounting irregularities). Don't trade these like shorter-dated calls — they're a different animal.
Frequently asked questions
Why LEAPs (long-term) instead of shorter calls?
Two reasons. (1) Vega: a 14-20 month call's price is dominated by IV, so buying at a 1-year low locks in cheap vol with HUGE upside if IV mean-reverts (which it usually does eventually). Shorter calls don't have the vega exposure. (2) Theta: LEAPs decay slowly — about $0.01-0.03/day per share for a 25-delta 18-month call. You can hold for months without bleeding much. Shorter calls decay 5-10x faster, which means you need to time the move precisely.
How does the composite score work?
Three component scores, all on a 0-100 scale, blended as 0.4·IV-rank + 0.4·Quality + 0.2·Setup. A pick must clear composite ≥ 55 to be published. IV-rank score = 100 minus the IV percentile (lower IV = higher score). Quality score comes from SEC EDGAR fundamentals (revenue growth, operating margin, cash runway, filing recency). Setup score comes from price action (pullback from 52w high + above 200dma). The 0.4/0.4/0.2 weighting prioritizes vol and fundamentals over the technical setup — those are the durable edges.
What's the contract pick rule?
For each ticker that clears the composite bar, the scanner walks the Polygon chain and picks the call closest to 25-delta with DTE between 420-600 days (14-20 months). The pick must also pass two liquidity gates: open interest ≥ 200 contracts AND bid-ask spread ≤ 12% of mid. If no contract clears both gates, the ticker is dropped — even if its score was high. That's why you sometimes see 'passed threshold: 6' but 'contracts found: 2' on the cron response.
Why 25-delta calls specifically?
25-delta is the sweet spot for LEAP convexity. Deeper ITM (40-50 delta) and you're paying mostly intrinsic — less leverage, less vega. Deeper OTM (10-15 delta) and the call is too far out of the money to ever realize most of its potential value — you need a massive move just to break even. 25-delta gives the maximum upside-per-premium ratio while keeping enough probability of finishing ITM to be realistic.
How are the three component scores computed?
IV-rank score: percentile of current 30d ATM IV vs the ticker's last 365 days of iv_snapshots. Quality score: 30 pts for revenue growth (>20% YoY), 20 for profitable op income, 20 for high gross margin (>50%), 20 for cash runway / not burning, 10 for filing within 120 days. Setup score: 60 for pullback in -25% to -50% sweet spot, +40 if above 200dma. Each component independently gates the others — a 95 IV-rank with a 30 quality score won't pass the composite even with full setup credit.
What does the Performance tracker show?
Every historical pick from every past scan, sorted by current P&L descending. Entry premium = the mid price when the scan published the pick. Current premium = the latest mark from leap_pick_marks (refreshed daily at 5 PM ET by the leap-marks cron). P&L % = (current − entry) / entry · 100. The table also shows days held, days to expiry, and time since last mark. Picks whose contracts have expired drop off automatically.
Why do scores sometimes show '—' for IV rank?
We need at least 60 days of iv_snapshots history to compute a stable IV percentile. If a ticker was recently added to the universe (or the backfill is incomplete), the IV-rank cell shows '—' and the IV score contribution to the composite drops to 0. That's why the LEAP watchlist is a SUBSET of the full Options Edge 25 — only tickers with full history qualify.
How should I size and manage a LEAP position?
Size SMALL — these are 100%-loss-risk positions if the stock flat-lines into expiration. Common rule: never more than 1-2% of portfolio per LEAP. Management: (1) Roll out / take partial profits at +50-75% to lock in vega gains while preserving upside. (2) Cut at -50% if the original thesis breaks (fundamentals deteriorate, stock breaks 200dma). (3) Don't hold into the last 60 days — theta acceleration in the final 2 months is brutal for OTM calls. Roll forward to the next LEAP cycle.
Why is the cron on Friday now instead of Sunday?
Polygon's options chain on a weekend has stale or missing greeks on long-dated contracts (no live quotes → null delta/IV). Running the scan after the Friday close gives the freshest chain of the week, with settled OI and tight spreads. You still get the post-close-Friday-through-Sunday window to digest before placing orders Monday morning — same effective workflow, much better data quality.
How does the daily mark cron work?
Every weekday at 5 PM ET, the leap-marks cron walks every leap_pick whose expiration is still in the future, fetches the contract's current snapshot from Polygon's single-contract endpoint, and appends a mark row with the new premium, IV, delta, and underlying spot. This builds a time-series for each pick, which the Performance tracker uses to compute current P&L. Picks with no mark yet (just published, before the first cron run) show '—' until tomorrow.