LEAPS -- Long-Term Equity Anticipation Securities

by Amanda Harvey

Share

What are LEAPS?

Long-Term Equity Anticipation Securities, known as LEAPS, are structured in the same way as standard options contracts, with the only difference being that their duration before expiration is longer than the maximum nine months offered by traditional options. The lifespan of a Long-Term Equity Anticipation Securities contract ranges between one and three years, with the most common time frame being two years.

Long-Term Equity Anticipation Securities are available on a range of stocks and indexes which are determined by the CBOE. These Long-Term Equity Anticipation Securities options are distinguishable on the listings from regular options by a unique three-character ticker symbol.


Long-Term Equity Anticipation Securities equity options reach their expiration date on the Saturday following the third Friday of January each year. These Long-Term Equity Anticipation Securities may be exercised on any business day prior to the date of expiration. New Long-Term Equity Anticipation Securities are listed by the CBOE in May, June, and July of each year.

The premium on Long-Term Equity Anticipation Securities is higher than the equivalent standard option, but this higher cost is offset by the benefit of a longer time in which the contract is able to make a profit.

Advantages of LEAPS

One of the benefits of trading Long-Term Equity Anticipation Securities is the leverage that is also offered by traditional options, enabling a trader to participate in the stock price movement for a fraction of the cost that owning the underlying asset would require.

Long-Term Equity Anticipation Securities allow the investor to take advantage of a longer-term trend without having to patch together shorter options contracts. This can be both labor-saving and cost effective when various premiums are taken into consideration.

Because of the longer duration until expiration, the holder of a Long-Term Equity Anticipation Securities contract may feel less pressure to respond to short-term market movements than the holder of a standard option may feel.

Using Long-Term Equity Anticipation Securities as a means of hedging an asset position against adverse market conditions offers an effective strategy for buy and hold investors, and allows a less labor-intensive approach to protecting the investment on these assets.

Disadvantages of LEAPS

Long-Term Equity Anticipation Securities have their drawbacks as well as their advantages, and this type of option is obviously not suited to all investors in all situations.

The longer duration of the contract allows for the possibility of greater amounts of movement in the price, and this may translate into greater risk.

The higher premium may be seen as a drawback for some investors, and even the longer duration may be perceived as an unwanted characteristic for traders who prefer faster movement in their trades.

In Conclusion

Long-Term Equity Anticipation Securities offer a viable alternative to regular options for investors wishing to take a longer-term position. Although the premium paid is higher than standard options, Long-Term Equity Anticipation Securities offer the benefit of time, which is valuable in many trading scenarios. Being aware of the potential drawbacks as well as the advantages of trading Long-Term Equity Anticipation Securities allows the investor to make this trading vehicle a useful one in their investing convoy.


Share
Follow Me on Pinterest              


”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.







Back to Stock Options Made Easy Home Page




Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name








Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.




Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name











Follow S_O_M_E on Twitter