LEAPS (Long-Term Equity Anticipation Securities)

LEAPS are long-term options contracts that allow investors to buy or sell the underlying asset (usually a stock or index) at a specified price, with expiration dates typically extending beyond one year. LEAPS function like standard options but with a much longer time horizon, offering investors more flexibility in managing their positions over an extended period. They are popular for investors looking to speculate or hedge over the long term.

Example

An investor purchases LEAPS on a tech stock with a two-year expiration, speculating that the stock will rise significantly over the long term.

Key points

• Long-term options contracts, typically with expiration dates of more than one year.

• Used for long-term speculation or hedging on stocks or indices.

• Provide more time for investors to manage positions compared to standard options.

Quick Answers to Curious Questions

What makes LEAPS different from standard options?

LEAPS have longer expiration periods (more than one year), offering investors more flexibility for long-term speculation or hedging.

How can investors use LEAPS?

Investors use LEAPS to speculate on long-term stock movements or hedge their portfolios against adverse price changes over an extended period.

What are the risks associated with LEAPS?

Like standard options, LEAPS can expire worthless if the underlying asset doesn’t perform as expected, leading to potential losses.