This is a trade idea I have been playing around with. The idea is to try and structure a trade that has a very high upside potential with minimal risk for long-term structural/secular trends. Necessary trade conditions to use this: 1. Fundamental - You believe the market/underlying is fundamentally undervalued from a long-term perspective (1-2 year outlook) and have solid fundamental reasons for significantly higher prices. 2. Technical - The market/underlying appears to be in a solid long-term uptrend. It is trading above 200 day MA, likely trading above 50 day MA and either MA has held as support on multiple tests. 3. Volatility - Implied volatility on the options, specifically the LEAPS is relatively low. As an example, I believe that XAU and NEM currently meet these criteria. I think it's quite obvious that the technical uptrends for XAU and NEM are very strong. I won't get into all the nitty gritty of the fundamental reasons for much higher gold prices unless somebody is interested but I think the U.S. trade deficit, U.S. budget deficit, weakening dollar all point to much higher gold prices. Here is the general idea. The idea is on pullbacks to support and/or on oversold (however you define oversold, I use stochastics) conditions, you initiate a SMALL position in the longest dated OTM LEAP call (would currently be 2006). What the optimal amount OTM is I am still playing around with. Then on the next short-term rally to overbought condition you sell short the 2005 LEAP call at the same strike price for hopefully the same amount you paid for the 2006 LEAP call thus creating a "free" trade that has significant upside potential if the market keeps trending up. As opposed to just buying OTM calls you have theta working for you instead of against you. Next pullback. Buy more 2006 LEAP calls. Next rally. Sell more 2005 LEAP calls. Rinse and repeat. This would theoretically allow one to build a very large position in long-term calls with hopefully minimal risk. The key would be to never purchase too many long calls to start in case the trend breaks down and/or long-term fundamental reasons evaporate. The devil is in some of the details. I'm finding playing around with the numbers that a greater then expected price difference in the underlying is needed to make the 2006 and 2005 LEAP call prices equal (to create the "free" trade). I'm wondering if that is possibly because I am looking to far OTM. I'm wondering if there is some optimal strike in terms of OTM from current price where maybe only a 10-15% price rise in the underlying would make selling a 2005 LEAP equal to the 2006 LEAP purchased 15% lower. Any comments/thoughts would be appreciated.