Business, Legal & Accounting Glossary
Long-term stock options or index options, with expiration dates up to three years away. LEAPs are very similar to standard options except for the fact that they expire much further in the future. They can be safer than traditional options because it is somewhat easier to predict stock movement over longer periods. Like options, they allow an investor to lock in a fixed price for the underlying security. Therefore, like options, they can be effective for both leverage and insurance purposes. Expiration generally occurs 36 months after purchase, and LEAPs are American style, so they can be exercised at any time before expiration. Strike prices usually range around 25% above or below the price of the underlying stock when the LEAP is first offered.
LEAPS, or Long-Term Equity Anticipation Securities, are equity or index options that have a long-term expiration date.
LEAPS can have expiration dates as much as two years and eight months into the future whereas ordinary options stock options have an expiration date in under one year. As a result, LEAPS options are much more difficult to price. Not every underlying equity having options traded on it will have LEAPS options, too. The options exchange will only initiate LEAPS option trading if research with market participants including any specialist or market maker indicates sufficient interest exists. A LEAPS option series will only have three strike prices at initiation, the current price and both 20-25% above and below the current price.
The LEAPS expiration month is always January. LEAPS that expire in under a year continue to trade as ordinary options. LEAPS are attractive for long-term investment and portfolio insurance positions.
Long-Term Equity Anticipation Securities
index roll
expiration cycle
long-dated option
Chicago Board Options Exchange
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This glossary post was last updated: 6th November, 2021 | 0 Views.