LEAPS

LEAPS are just like regular monthly or weekly options except that there Expiration Date is out more than one year, and up to three years. LEAPS stands for Long-term Equity Anticipation Security.  LEAPS options provide investors different ways to trade, hedge or invest in the broad market for a much longer time frame than standard options with monthly expirations.

Stock Alternative

Many times if I want to buy a stock and hold it long term I buy a LEAPS instead. LEAPS offer investors an alternative to buying stock. LEAPS Calls enable investors to benefit from stock price rises while risking less capital than required to purchase stock. If a stock price rises to a level above the Strike Price of the LEAPS, the buyer may exercise the option and purchase shares at a price below the current market price. The same investor may sell the LEAPS Calls in the open market for a profit.

Hedge

LEAPS Puts provide investors with a means to hedge current stock holdings. Investors should consider purchasing LEAPS Puts if they are concerned with potential price drops on stock that they own. A purchase of a LEAPS Put gives the buyer the right to sell the underlying stock at the strike price up to the option’s expiration.

Real World Example of LEAPS

Time Decay Of LEAPs

Unlike monthly or weekly’s, the Time Decay in LEAPS is very slow. Assuming you exit the LEAPS while it still has 6 months or more to go until expiration, you are unlikely to lose much value in the form of Time Decay.