Long-Term Equity Anticipation Securities (LEAPS)
Candlefocus EditorA LEAPS contract is an option that has an expiration date more than a year from the purchase date. LEAPS can be listed on a particular stock or index as a whole, so investors can utilize these options for hedging strategies or to protect their retirement portfolios. LEAPS are available for a variety of exchanges, so users can choose which contracts make the most sense for their portfolio.
The premiums for LEAPS are higher than those for standard options in the same stock, but lower than the cost of shares of the underlying stock. The cost of the LEAPS is offset by the prolonged expiration date and potential for long-term success. This makes LEAPS particularly attractive to long-term investors and those looking to take advantage of trend shifts in the stock market.
Unlike regular options, LEAPS can be sold as well as bought. This can be an attractive feature for those looking to utilize LEAPS as hedging tools. By selling LEAPS, long-term investors can generate additional income on their current holdings while also potentially reducing their risk.
However, it is important to remember that LEAPS are still options, and are subject to the same risks involved in any options contract. LEAPS options still have expiration dates, so the options must be exercised before the date of expiration or the investor will lose the entire amount of the premium that was paid for the LEAPS. Therefore, investors should consider their risk tolerance and the potential outcome of their LEAPS contract before investing.
In conclusion, LEAPS can be an excellent tool for long-term investors looking to take advantage of long-term trends in the stock market without investing in costly shares of the underlying stock. The extended expiration date on LEAPS allows investors to speculate with assurance that the option will be available when the expected trend shift occurs. With close scrutiny and a carefully planned risk strategy, options traders can utilize LEAPS for their benefit.