What are LEAPS Options?
Many investors are familiar with the term stock options, but relatively few understand what they are and how they work. Stock options are simply contracts that give buyers the right, but not obligation, to buy or sell an underlying stock at a specific price on or before a certain date. LEAPS – or long-term equity anticipation securities – are simply long-term stock options. Still confused? The concept of an option can be found in the real estate market. Say, for example, that you find a house that you want to purchase. Unfortunately, you won’t have the cash you need to buy it for another two months. After negotiating with the owner, you propose a deal that gives you the right to buy the house in two months for 250,000 dollars. In return, the owner requires that you pay 2,500 dollars for the option. In the stock market, all options follow a standard format and contain the following elements: • Symbol – Like a stock, options have a series of letters associated with them. And yes, there i
LEAPS Options were started in 1990 for the sake of long term leveraged speculation. One of the main drawbacks of buying options before LEAPS options were created was that standardized options, with only a few months to expiration, has too short a life for long term options trading purpose. With the creation of LEAPS options, long term investors could now buy LEAPS instead of the stock itself for more leverage as LEAPS options have expiration of as long as 3 years. Indeed, long term investing was a void in options trading before the creation of LEAPS options. Even though LEAPS options are special options with unique specifications, they are so well blended into options chains that you can hardly tell which are the LEAPS options. In fact, it isn’t important for options traders and investors to know if an option is known as LEAPS options or not as long as the expiration fulfills investment or options trading requirements. There is a growing misunderstanding amongst the options trading com
