Long-Term Equity Anticipation Securities (LEAPS)

Long-Term Equity Anticipation Securities (LEAPS) are Options contracts with expiration dates that are longer than one year, typically ranging from one to three years. They allow investors to leverage their positions in individual Stocks or Stock indices, providing the opportunity to profit from anticipated price movements over a longer time horizon compared to standard Options.

LEAPS can be used as a strategy for Hedging or speculative investment. For example, an investor might buy a call LEAPS contract on a Stock they expect to rise significantly over the next two years, allowing them to control a larger number of Shares for a relatively low initial investment.

In a case where an investor purchases a LEAPS call option for Company XYZ, which is currently trading at $50, with a Strike Price of $55 and an expiration date two years away, if the Stock price rises to $70 before expiration, the investor could exercise the option and purchase the Shares at the lower Strike Price, realizing a profit.

Conversely, an investor may choose to buy LEAPS put Options if they anticipate a decline in a Stock’s price, providing a way to profit from bearish market conditions while limiting risk to the premium paid for the Options.