Why I'm Selling 2-Year Puts (And Why Most Traders Won't)

Finance-Specific Summary

The speaker explains how to extend the “wheel” options strategy by selling LEAPS put options (long-dated puts, more than 1 year) instead of short-dated puts. The goal is to collect large premium upfront while leveraging a long time + volatility advantage (Vega) to create a margin of safety before any downside risk materializes.

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Instruments / Tickers Mentioned

• SPY (used to illustrate the volatility term structure: approximately 12.5% near-term vs. ~17% far out)
• Coinbase (ticker not explicitly stated)
• Robinhood (implies HOOD, though the ticker is not explicitly written)
• SoFi (implies SOFI)
• Tesla (TSLA)
• Nvidia (NVDA)

Options structures referenced:

• LEAPS puts (typically 12–18 months, sometimes discussed up to ~24/27 months)
• Covered calls after assignment

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Key Options / Portfolio Framework (Step-by-Step)

Method for Selecting LEAP Put Trades (Wheel Extension Logic)

1) Choose a quality underlying

• Only sell puts on companies you’d be willing to hold long term.
• Look for:
  • Strong revenue dynamics
  • Solid profits
  • A proper business model (not hype)

2) Require elevated expected volatility

• Check IV percentile.
• Target:
  • IV percentile > 50
  • Ideally > 60
• Can accept ~30 if market volatility is extremely low.

3) Choose a strike via delta

• For put-selling generally, a typical delta range is 10–35.
• For LEAPS, the speaker leans toward the lower end:
  • Often target delta ~10–15 to maintain a larger safety buffer.

4) Validate premium vs. risk using an in-the-money put calculator

• Ensure the premium justifies the capital freeze of 12–24 months.
• Evaluate:
  • Potential annualized return
  • Discount to breakeven
    • Breakeven depends on strike minus premium

5) Understand risk buffer / break-even margin

• Core concept:
  • Break-even price = strike price − premium received
• The “structural margin of safety” is how far the stock can fall before losses begin at expiration.

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Core Strategy Mechanics (How It Extends the Wheel)

Wheel Basics (Referenced)

1. Sell cash-secured puts
2. If assigned, sell covered calls

LEAPS Wheel Extension

• Phase 1: Sell a 12–18 month LEAPS put (sometimes discussed up to ~24/27 months)
  • Collect most premium upfront
  • If the stock stays above the strike, the put expires worthless and you keep premium
  • If exercised/assigned, you buy shares at a discount
• Phase 2: If assigned, sell covered calls like the standard wheel

Profit Durability Tool: Structural Volatility Risk Premium

The speaker emphasizes selling puts when volatility term structure is in contango:

• Near-term IV is lower
• Far-term IV is higher
• They claim the dominant Greek becomes Vega for LEAPS puts.

SPY example:

• ~12.5% IV near term vs ~17% IV far end
• The benefit is framed as occurring if volatility later normalizes/declines.

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Quantitative Examples / “Open Deals” Shown

1) Coinbase LEAPS Put (Open Example)

• Strike: 50
• Expiration: Dec 2028
• Time to expiration: 824 days (~a little over 2 years)
• Delta: ~10 at start, later around 4
• Potential annualized return: 6.65%

Notes:

• Breakeven reduction is described as “huge”
• Mentions additional return possibility on cash collateral (term deposit / cash management), “a few percentage points”

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2) Robinhood LEAPS Put (Open Example)

• Strike: 40
• Expiration: ~just over 2 years
• Delta: described as “quite short,” declining after the stock move
• Breakeven discount: 68%
  • Interpreted as: the stock could fall up to 68% before losing money at expiration (per speaker explanation)

Mentions:

• “About 6% of potential profit from this level” plus profits already received

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3) SoFi LEAPS Puts (Example with Assignment Path)

• An example expiration described as December with ~3.5 months left

Assignment risk / timing:

• It’s described as in the money now, so assignment is possible/“completely normal.”

If assigned:

• Own 100 shares
• Start selling covered calls

Contingency:

• If stock falls below 15, they would buy “a few more shares” and continue covered calls

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4) Tesla LEAPS Put (Shorter Horizon Example)

• Expiration horizon: 6 months “until March next year”
• Strike: 210
• Delta low; described as a “pretty good profit”

Plan:

• “Probably close this deal soon” because premium is low relative to profit
• Then “roll back and try again” (timing tied to volatility/entry)

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Walk-Through: Opening a New LEAPS Put (Nvidia Example)

The speaker uses Nvidia (NVDA) to show how strike choice affects breakeven and annual return.

Step: Choose the Longest Expiration (“December” window)

Attempt A (More conservative delta)

• Target delta: ~10
• Strike: 130
• Premium: about $875
• Breakeven price: “just above 120”
• Implied risk:
  • Would be obligated to buy NVDA at $130
  • But NVDA is said to be ~$214 currently (strike is far below spot)
• Potential annual return: 3.20%
• Speaker reaction: too low vs their usual targets; prefer higher premium/volatility or better strike.

Attempt B (Slightly higher delta)

• Delta: ~17
• Strike: 160
• Premium: about $1,655
• Breakeven improves, but annual return doesn’t improve much

Conclusion:

• Prefer waiting for rebound + increased expected volatility to find better entries, since IV is “quite low” currently.

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Explicit Recommendations / Cautions (Risk Management)

1) Long capital lock-up

• Collateral frozen for 12–24 months (up to 27 months mentioned).
• Recommendation: allocate no more than 5% of your portfolio to one LEAP position.
• Margin trading is mentioned but flagged as risky (no details provided; “another topic”).

2) Prolonged bear market risk

• Example: if a stock drops 40% in 12 months, there’s less flexibility than with a 45-day put.
• Rolling/correction room is reduced; you may wait for recovery.
• Reinforces “choose quality” because recovery is needed.

3) Assignment can require large upfront capital

• Assignment buys 100 shares.
• Ensure cash is available; don’t rely too heavily on leverage so multiple adverse positions don’t become unmanageable.

4) Rolling can be expensive or difficult if deep ITM

• Deep ITM LEAP puts are described as harder/impossible to roll effectively.
• Rolling is stated to be more expensive than short-term puts.
• Therefore, relying on rolling as a “lifeline” is discouraged.

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Disclosures / Disclaimers

“Everything discussed here is for educational purposes only and is of a general nature.” (No direct “not financial advice” phrasing, but the educational/general nature disclaimer is present.)

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Presenters / Sources

• Presenter: A single speaker is implied (no specific name provided in the subtitles).
• Sources / tickers used for examples: SPY, Coinbase, Robinhood, SoFi, Tesla (TSLA), Nvidia (NVDA).