Long-Term Equity Anticipation Securities – LEAPS

Publicly traded options contracts with expiration dates that are longer than one year. Long-term Equity AnticiPation Securities (LEAPS) are long-term option contracts that allow investors to establish positions that can be maintained for a period of up to three years. CBOE lists LEAPS on Equity and Index products. Please visit the CBOE Symbol Directory for a listing of all CBOE Equity LEAPS and Index LEAPS. They are are long term options that last anywhere from one to three years before they expire. LEAPS are available on stock indexes (such as the S&P500 in the US, or the FTSE100 in Europe), and on individual stocks. LEAPS are identical to regular (short term) options, with the exception that they can be held for up to three years. Structurally, LEAPS are no different than short-term options, but the later expiration dates offer the opportunity for long-term investors to gain exposure to prolonged price changes without needing to use a combination of shorter-term option contracts. The premiums for LEAPs are higher than for standard options in the same stock because the increased expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit.

Like regular options, LEAPS can be used to hedge (i.e. insure) an already existing trade, or they can be used to trade a stock for the long term without actually owning the underlying stock

LEAPS are an excellent way for a longer-term trader to gain exposure to a prolonged trend in a given security without having to roll several short-term contracts together. The ability to buy a call/put option that expires one or two years in the future is very alluring because it gives the holder exposure to the long-term price movement without the need to invest the larger amount of capital that would be required to own the underlying asset outright. These long-term options can be purchased not only for individual stocks, but also for equity indexes (such as the S&P 500).