Options 101 | Pelosi Makes Another Move! LEAPS: Extending Long Calls to a Multi-Year Strategy

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In addition to the Wednesday mini-class, we also have 'Opportunity Pool' on Mondays to discuss potential trade ideas, and 'Weekly Recap' on Fridays to break down cases from the week—each of these three segments has its own focus, and they work even better when consumed together.Follow NiuNiu’s official account 'BaiDao Plays Options' so you never miss an update~

Today, we’re deviating from the outline (we still need to cover the final of the four basic options strategies, Short Put, which we’ll discuss next week). Let’s talk about something fresh instead.

Recent congressional trading disclosures have sparked renewed interest—public records show that the Pelosi family purchased $Bloom Energy (BE.US)$ long-term call options (LEAPS Calls). Based on the disclosed contract details, this trade involved buyingcall options with a strike price of $100 and an expiration date in June 2027.—Note this strike price, which is significantly lower than BE's current stock price (latest price: $217.45). Additionally, Pelosi also purchased $Intel (INTC.US)$ long-term call options.

This is precisely Pelosi's signature strategy:Buying long-term call options with an expiration date more than a year away and a strike price that is deeply "in-the-money." In Episode 04, we discussed "Buying a Call (Long Call)" as a bet on a significant stock price surge. So, what exactly are LEAPS? How do they differ from standard Long Calls?

What are LEAPS? They are essentially "call options with longer expiration periods."

LEAPS (Long-term Equity Anticipation Securities) are fundamentally long call options with distant expiration dates, representing a specialized form of long calls.Today, we’ll use Pelosi’s actual disclosed trade as a case study to explain this concept thoroughly.

Quick recap: A long call involves paying a premium to purchase the right to buy stock at a predetermined price in the future. You buy it when bullish; losses are limited (at most, you lose the entire premium), while profit potential is significant.

So, what about LEAPS? The name might sound intimidating, but there’s really only one core feature—Long-term options with expiration dates typically exceeding one year are referred to as LEAPS.Short-term long calls may expire in a week or a month; LEAPS, however, often have expirations one or two years out. The June 2027 expiration date of Pelosi’s recent purchase also classifies it as a LEAP.

The Pelosi family favors this strategy. Based on past congressional trading disclosures, they frequently buydeep in-the-money long-term call options—for instance, in this trade involving BE, the strike price was only $100 while the stock price was already $217, which is a classic example of being "deep in-the-money."Use less capital than required for a full stock purchase, add a bit of leverage, and maintain a long-term bullish stance on a stock.

The essence of LEAPS: Transforming the "bet on a massive surge" nature of Long Calls into "leveraged long-term holding."

Comparison with standard Long Calls

While both involve buying call options, LEAPS and the short-term Long Calls discussed in our Issue 04 share the same structure but differ in character.

Similarities (Same Structure):

Both are long positions where you pay the premium to enjoy the rights; your maximum loss is limited to the premium paid.Limited downside risk；

Both are purchased with a bullish outlook; the more the stock price rises, the greater the profit.

The P&L diagrams are identical: a kinked line that slopes upward after the break-even point.

Differences (Different Character):

First,The time pressure is worlds apart.Short-term long calls expire in days or weeks, with time value decaying as rapidly as sand slipping through an hourglass (i.e., the closer to expiration, the less valuable the option becomes). In contrast, Pelosi's position doesn't expire until June 2027. With nearly a year remaining, this decay is much slower, providing ample time for the anticipated catalysts to play out.

Second,Pelosi buys in-the-money options, not out-of-the-money ones.In Issue 04, we taught buying "out-of-the-money" Calls (where the strike price is higher than the current price; these are cheap and used to speculate on explosive moves). However, Pelosi's BE option has a strike price of $100 while the stock price is already at $217, making it deeply "in-the-money" (strike price far below the current price). The premium consists largely of intrinsic value—real tangible value—so its price movement closely tracks the underlying stock. It resembles "buying stocks on installment at a discount" rather than pure speculation.

Third,Different objectivesShort-term Long Calls are about "betting on a market swing"; whereas LEAPS like Pelosi's reflect a view that "I'm bullish on this company over the next year or two, but I don't want to tie up all my capital buying shares outright; instead, I'll exercise the option at expiration to convert into the underlying stock."

For the same call option, short-term positions may experience greater volatility, while LEAPS act more like "holding the stock long-term with lower leverage."

Applying Pelosi's strategy, let's use BE as an example.

Let's round BE's current price for calculation purposes. $220。

Strategy A (Short-term Long Call, following the approach from Issue 04)Buy one out-of-the-money (OTM) call option expiring next month with a strike price of $240. Assuming a premium of $8, the cost is $800. The stock needs to rise above $248 (the break-even point) for you to start making a profit. Due to the short time horizon and rapid theta decay, this is a highly speculative play.

Strategy B (Pelosi-style LEAPS approach: Deep In-The-Money)Following Pelosi's approach, buy a deep-in-the-money call option expiring in June 2027 with a $100 strike price. Since the strike price is significantly lower than the current market price, the option premium consists almost entirely of intrinsic value (underpinned by approximately $120 per share in intrinsic value, calculated as $220 - $100). Assuming a premium of $130, one contract would cost $13,000. While this may seem expensive, compared to buying 100 shares outright for $22,000, it allows you to lock in the same upside potential with less capital. You also have nearly a year to wait for the thesis to materialize, and you can exercise the option at expiration to convert it into 100 shares of the underlying stock.

Do you see the difference?Both are bullish on BE. For short-term trading, use a few hundred dollars to bet on a breakout. For the Pelosi-style deep ITM LEAPS, use larger capital to gain 'time + leverage close to owning the underlying stock.' Each strategy has its own use case.

Key Takeaways

LEAPS = Long-Term Equity Anticipation Securities. Essentially, they are a special form of Long Call options.

Pelosi's recent trade on BE: Strike price $100, expiring on June 17, 2027. This is a typical 'deep in-the-money long-term call option.'

It shares the same structure as a short-term Long Call: both involve buying options, have limited downside risk, are purchased with a bullish outlook, and have identical profit/loss profiles.

The key differences lie in their characteristics: longer duration, slower theta decay, and typically bought 'deep in-the-money.' The goal is 'long-term leveraged stock holding, exercising at expiration to convert into shares,' rather than betting on a short-term spike.

For fellow investors looking to experience LEAPS, open Futubull → select a specific stock (e.g., BE) → Options → Option Chain. Scroll the expiration dates out to more than one year, and then scroll down the strike prices to levels significantly below the current market price.Compare the difference in premiums between short-term out-of-the-money calls and long-term deep-in-the-money calls, as well as the differing rates of time decay. You'll immediately understand why Pelosi made such purchases.

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Disclaimer

This content does not constitute an offer, solicitation, recommendation, advice, opinion, or any form of guarantee regarding any securities, financial products, or instruments. Trading options carries substantial risk of loss. In certain scenarios, your losses may exceed the initial margin deposit. Even if you set contingency instructions such as 'stop-loss' or 'limit orders,' these may not necessarily prevent losses, as market conditions could render such instructions unexecutable. You may be required to deposit additional margin on short notice. If you fail to meet the margin call within the specified timeframe, your open positions may be liquidated. Nevertheless, you remain fully liable for any resulting deficit in your account. Therefore, prior to trading options, you should thoroughly study and understand options trading and carefully consider whether such trading aligns with your financial situation and investment objectives. If you do trade options, you must become familiar with the procedures, rights, and obligations associated with exercising options and their expiration.

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