LEAPS Options Explained: Long-Term Option Investing Guide
If you’re looking for long-term exposure in the stock market with lower capital risk, LEAPS options could be a smart addition to your strategy. LEAPS allow traders and investors to control stock positions for months or years—with lower upfront investment than buying shares.
In this post, we’ll explain what LEAPS options are, how they work, and why they’re popular among long-term traders.
What Are LEAPS Options?
LEAPS stands for Long-term Equity Anticipation Securities. They are standard call or put options with an expiration date longer than 9 months, often up to 2 or 3 years.
LEAPS function just like regular options but give you more time for your trade idea to work out.
Why Use LEAPS?
- Longer time to be right about a trade or investment thesis
- Lower capital outlay compared to buying 100 shares
- Defined risk (limited to premium paid)
- Leverage without borrowing money
Example: Buying a LEAPS Call
You like XYZ stock, trading at $100, and expect it to go higher over the next year.
Instead of buying 100 shares ($10,000), you buy a 1-year $100 LEAPS call for $8.
- Total cost = $800
- If XYZ goes to $130 before expiration, your option could be worth $30 → 275% gain
Compare that to a 30% gain from owning the shares directly.
Common LEAPS Strategies
- Buy LEAPS Calls: Bullish on long-term growth
- Buy LEAPS Puts: Long-term bearish bet or hedge
- LEAPS Covered Call: Buy LEAPS call + sell short-term call for income
- LEAPS Diagonal Spread: Combine long LEAPS with short-term options
LEAPS vs Regular Options
| Feature | LEAPS | Regular Options |
|---|---|---|
| Expiration | 9 months to 3 years | Weekly to 6 months |
| Time decay (theta) | Slower | Faster |
| Premium cost | Higher | Lower |
| Ideal use | Investing | Trading/speculation |
Risks of LEAPS Options
- Higher upfront cost than short-dated options
- Still subject to theta decay over time
- May lose entire premium if stock moves the wrong way
- Lower liquidity in some strike/expiry combos
FAQs
1. What are LEAPS options?
They’re long-term options contracts (9+ months) used for investing or hedging.
2. Are LEAPS only for call options?
No. LEAPS are available for both calls and puts.
3. Is buying LEAPS better than buying stock?
It offers leverage, but also comes with risk of total premium loss.
4. Do LEAPS lose value over time?
Yes, due to time decay—but slower than short-term options.
5. Can LEAPS be sold early?
Yes. You can sell them at any time before expiration for a profit or loss.
