Speculators, Start Your Engines: Taking A Peek At The 2027 LEAPS

Food For Thought On Some Interesting Speculations For The Next Couple Years

Today we’re going to be doing a detour into something that has piqued my interest over the last couple years. Options aren’t for everybody, but I think it’s a tool worth having in the so-called investor toolkit. Some might view it as gambling, but I view options as informed speculation in most cases. I’ll leave the zero day to expiration (0DTE) options to the degenerates, but options can add torque if you get it right. They can also expire worthless, so it is a double edged sword. A large portion of options expire worthless (or are closed at a significant loss), and you’re betting against the so-called house, so you have to have a view that is different from the market on a stock or sector.

I haven’t made it a secret that I’m a bull on commodities, or which sectors I’m partial to, but I think there are several opportunities where the 2027 Options Chain is worth a look. I only have one of these trades on for now, but the rest of these ideas are things that have crossed my mind in recent weeks with the release (Grand opening? Premiere?) of the January 2027 Options chain. I prefer the OTM (out of the money) options, but there are different ways to express a trade with options. Don’t worry, I won’t be releasing an options trading course anytime soon, but I have seen a quote from one of the greats making the rounds on Fintwit, and I think it’s thought provoking for today’s post.

"He taught me that you have to visualize the situation 18 months from now, and whatever that is, that's where the price will be, not where it is today. Never, ever invest in the present. It doesn’t matter what a company's earning, what they have earned."

- Stan Druckenmiller

With the 2027 LEAPS (long-term equity anticipation securities), you get more than two years. You pay for the privilege of the additional time to expiration. Bid/ask spreads will also usually be wider, but if you want to add torque or a kicker to a position in common shares, the LEAPS are one way to do that. For baseball fans (my Mariners missed the playoffs again), using LEAPS (or any form of options really) is an exercise in slugging percentage versus batting average. I’ll apologize in advance to Yankees fans (it was either Damon and the Red Sox coming back from the 3-0 deficit or Lindor’s salami in 2017), but baseball provides a good way to visualize the potential outcomes from LEAPS.

With regular shares, you might have a great batting average (.600 or higher), but for investors, it’s a question of how much do you make when you’re right? Going 3/4 with three singles is a batting average of .750 and a slugging percentage of .750, while going 1/4 with a homer is a batting average of .250 but a slugging percentage of 1.000. I’m not going to get derailed talking about baseball statistics, but a home run has more potential to change a game (or in our case, an investor’s returns) than a bunch of singles. The point is that if you get the LEAPS right, even at a lower batting average, that math works out due to the potential for outsized returns.

I usually save the disclaimer for the end, but I’ll make an exception in this case. Options are more risky than owning common stock, and you are way more likely to lose your entire investment versus buying common stock. You need to be right on the direction of the move, the magnitude of the move, AND the timing of the move to get it right with options. I have said this a couple times in regard to sectors that have more risk in my opinion, but this applies to options as well: position sizing is your friend. With that said, let’s get into some of the situations where I think the 2027 LEAPS are interesting.

Sable Offshore