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Most stock options are short-term
investment instruments, with expiration terms of several months. Long-term Equity
AnticiPation Securities®, LEAPS, are long-term stock options - contracts that don’t
expire for periods of up to three years.
LEAPS offer a different risk profile
than regular options because there is a longer time for the underlying stock to meet the
buyer’s expectation. As with other options, LEAPS are available in two types, Calls
and Puts. Like other exchange-traded stock options, LEAPS are American-style options.
LEAPS provide
investors with several key benefits:
- A buyer of a Call option can profit from
the underlying stock’s performance while not actually buying the stock.
- An initial LEAPS position does not
require an investor to manage each position daily.
- Purchase of LEAPS Puts provides a hedge
for stock owners against substantial declines in their stocks.
- Current options users will also find
LEAPS appealing if they desire to take a longer term position of up to three years in some
of the same options they currently trade.
- Another feature of LEAPS is that the
money that would have been required to actually buy the stock can be invested in other
instruments for a longer period of time and may generate additional earnings.
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Like other stock options, the
expiration date for LEAPS is the Saturday following the third Friday of the expiration
month. All equity LEAPS expire in January.
The longer term is the main differences
between LEAPS and conventional equity options.
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This site discusses exchange-traded options issued by The
Options Clearing Corporation. No statement on this site is to be
construed as a recommendation to purchase or sell a security, or to
provide investment advice. Options involve risks and are not suitable
for all investors. Prior to buying or selling an option, a person must
receive a copy of Characteristics and Risks of Standardized Options.
Copies of this document are available from The American Stock Exchange,
86 Trinity Place, New York, NY 10006 or The Options Clearing
Corporation, 440 S. LaSalle Street, Suite 2400, Chicago, IL 60605.
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