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

    Using Options Instead Of Equity

    Learn how to multiply returns and diversify risk by buying options instead of stock.
  3. Investing

    Using LEAPS In A Covered Call Write

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

    Long-Term Option Plays

    Investing in long-term call options can lead to a huge payoff if they are used right.
  5. Trading

    Getting Acquainted With Options Trading

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

    5 Reasons Young Investors Should Trade Options

    Options get a bad rap. Find out why these financial instruments are ideal for young investors.
  7. Trading

    How to Make Money by Trading Index Options

    Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction.
  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.
  9. Trading

    Exploring European Options

    The ability to exercise only on the expiration date is what sets these options apart.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center