Before ending this discussion of equity options in particular, we must introduce long-term equity anticipation securities, or LEAPS - a trademarked term for long-term stock or index options.

  • LEAPS, like all options, are available in two types - calls and puts - but with one important distinction. Other exchange-traded options expire in a matter of months; LEAPS can take one to three years.
  • LEAPs allow long-term investors to gain exposure to a prolonged trend in a given security without having to roll several short-term contracts together.
  • Another benefit is the ability to invest a smaller amount of capital in order to participate in the long-term price movement, rather than the larger amount of capital that would be required to own the underlying asset outright.
  • The added benefits come at a cost. Premiums for LEAPS are higher than for standard options on the same underlying asset because the increased time to the expiration date gives the underlying asset more time to make a substantial move.

As mentioned earlier, shares of stock are just one of any number of assets from which options can be derived. Historically, equity options have made up the largest segment of the market, as well as the most newsworthy because of their impact on executive compensation. But stock options represent at best a plurality, not a majority, of the number of option contracts traded in the U.S. in a given year.



Index Options

Related Articles
  1. Investing

    Long-Term Equity Anticipation Securities: When To Take The "LEAP"?

    Options are always speculative, but LEAPS provide a longer time frame, which may make them more profitable.
  2. Trading

    Rolling LEAP Options

    The rewards of using LEAP call options can be a lower cost of capital, higher leverage and no risk of margin calls.
  3. Trading

    Using Options Instead Of Equity

    Learn how to multiply returns and diversify risk by buying options instead of stock.
  4. Trading

    Stock Option Expiration Cycles

    Understanding expiration cycles is just one more way to help you increase your success rate when trading options.
  5. Investing

    Using LEAPS In A Covered Call Write

    Discover how strategy can help reduce your downside risk.
  6. Investing

    Covered Call Strategies For A Falling Market

    Find out how to come out on top, even when the market is dropping.
  7. Trading

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  8. Investing

    Creating Highly Effective Hedges With Index LEAPS

    Index LEAPS can be a highly effective way to hedge a retirement portfolio consisting of index or mutual funds, without the effort of short-term options trading.
Trading Center