The S&P 500 jumped higher in early trading Wednesday, gaining 3.2% in the first hour, but cooling off as the day progressed, finishing up 1.7%. 

The White House softened its tone regarding tariffs, which put investors in a buying mood for a change. 

Yesterday’s unusual options activity was relatively active with 1,053 on the day, split 58%/42% between calls and puts.  

Of the 610 calls expiring in seven days or more, with Vol/OI ratios of 1.24 or higher, one stands out if you’re a conservative investor, and that’s Toast’s (TOST) Jan. 15/2027 $47 call. 

Risk-averse investors who might not want to take a chance on Toast, which just hit GAAP annual profitability in 2024, can use this LEAP (Long-Term Equity Anticipation Securities) with a guaranteed investment, such as a Treasury bill or ETF, to lower the risk profile of this bet. 

I like Toast, with or without this LEAP play. Here’s why. 

Toast Continues to Grow

I remain bullish about Toast regardless of the health of the U.S. economy. Restaurant operators will continue to need their software platform in good times and bad. 

I last wrote about Toast in March, highlighting its two June 20 $25 strikes—one call and one put. I’ll get back to the options discussion shortly.

In the meantime, let’s consider its positive attributes for making a long-term bet.

As I mentioned in the introduction, Toast hit GAAP profitability in 2024, moving from a $246 million loss the year before to a profit of $19 million, albeit small. 

The reason for turning a profit? 

Its GPV (gross payment volume) increased 26% to $42.2 billion, resulting in an ARR (annualized recurring run-rate) of $1.6 billion, 34% higher year-over-year. Its non-GAAP gross profit from subscription services was $1.42 billion, 34% higher than $1.06 billion in 2023.

Most importantly, in 2024, it added 28,000 locations, finishing the year with 134,000. It plans to grow exponentially by expanding into several new customer groups, including enterprise, international, and food and beverage retail. 

“In 2025, we’ll accelerate our efforts across these new addressable markets and continue to further differentiate our platform,” stated Toast CEO and co-founder Aman Narang. 

“We’re well on our way to our ultimate goal: serving many multiples of the 134,000 locations we do today, and delivering durable growth and strong profitability over the long term.”

As the company pointed out in its press release, its customers include over one-third of the restaurants winning the 2024 James Beard awards and over half of the Michelin-rated U.S. restaurants. 

Up and down the restaurant price points, Toast is grabbing new business. It should continue scaling its business model successfully, leading to greater profits and higher share prices. 

The Journey Back to $60

In December, I discussed Toast’s share price returning to $60, where it traded in November 2021, shortly after going public at $40 that September.  

TOST stock had gained 136% in 2024 at the time of my article on Dec. 3. Further, it was up nearly 200% from its November 2023 low of $14.45. 

Although it was on a big roll, and I thought it could return to $60, I didn’t necessarily think it would happen soon because its enterprise value to sales ratio was high at 4x. 

According to S&P Global Market Intelligence, it’s still high at 3.6x, but reasonable considering it generated over $300 million in free cash flow in 2024, up from $93 million a year earlier, for a free cash flow margin of 6.2%, 380 basis points higher than in 2023. 

It’s got a shot of hitting a 10% free cash flow margin in 2025. There’s no question that Toast’s business is maturing well. 

I believe $60 is possible, but not until 2026. 

In the meantime, let’s consider the LEAP from yesterday’s trading.  

The Conservative Investor’s Play

In February, I discussed using LEAPS to bet on a stock you think could move higher without sacrificing too much of your capital. 

In this instance, the LEAP was for Walgreens Boots Alliance (WBA), the struggling drugstore chain. The Jan. 15/2027 $10 LEAP was the best bet. It’s gotten crushed. The ask price has dropped from $5.00 down to $1.74. However, there are still 967 days to expiration. Anything could happen. 

Toast is a much better company. That being said, its profitability is still new, so it’s understandable why a risk-averse, conservative investor might be hesitant to bet the farm on it. 

So, let’s say you were considering buying 500 shares of TOST. As I write this late morning on Thursday, Toast’s shares are trading up 1% at $35.28. But for this article, let’s use the numbers from the introduction.

Your cost to buy 500 shares would be $17,445. Rather than dole out the entire amount, you buy five Jan. 15/2027 $47 calls for $3,475 [5 * $695 premium], or just less than 20% of what you’d have to pay today for the 500 shares. 

You then take the difference ($13,970) and put it in a short-term Treasury ETF such as the SPDR Portfolio Short Term Treasury ETF (SPTS). 

It tracks the performance of the Bloomberg 1-3 Year U.S. Treasury Index, a collection of U.S. Treasury bills maturing in 1-3 years. Your management fees to hold it for 633 days would be $7.12, or $3 per $10,000 invested. It yields 4.18%. 

It’s a small price to protect 80% of your capital. 

Based on the $47 strike price, $34.89 share price, and $6.95 ask price, your breakeven is $53.95, 55% higher than where it’s currently trading. 

The $0.50202 delta means that for every $1 increase in its share price, the ask price will increase by a little over 50 cents. This means you can double your money on the call by selling before expiration if the shares rise by $13.84 (40%) over the next 21 months. 

While a 40% move is still significant, it’s much more realistic than 55%. More importantly, by utilizing this strategy, should the stock move the other way due to a softer economy, you’ve risked $3,475, not $17,445. 

That’s the beauty of LEAPS.