Derivatives - Long Term Equity Anticipation Securities (LEAPS)
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.
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- 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.