Long-Term Equity AnticiPation Securities (LEAPS)
Standard equity options expire within months. But what if an investor wants a longer time horizon? LEAPS extend the options timeline to up to three years while keeping everything else the same.
What Are LEAPS?
- LEAPS are long-term options with expiration dates more than one year from the date of issuance, extending up to approximately 3 years
- Available as both calls and puts on individual equities and certain indexes
- LEAPS expire on the third Friday in January of the expiration year
Exam Tip: Gotchas
- LEAPS expire on the third Friday in January (not just any month)
Key Characteristics
| Feature | LEAPS | Standard Options |
|---|---|---|
| Expiration | Third Friday of January (1-3 years out) | Third Friday of expiration month (near-term) |
| Contract size | 100 shares | 100 shares |
| Exercise style | American-style (equity LEAPS) | American-style (equity options) |
| Issued/guaranteed by | Options Clearing Corporation (OCC) | OCC |
| Premium | Higher (more time value) | Lower (less time value) |
- LEAPS have higher premiums because the extended time to expiration means more time value
- As a LEAPS contract approaches its final year, it converts into a standard short-term option and follows normal expiration cycles
Exam Tip: Gotchas
- Higher premium due to more time value is expected, not a disadvantage
- LEAPS holders do not receive dividends or voting rights (they hold an option, not stock)
Common Uses
- Long-term speculation: Bullish or bearish bets with a multi-year horizon
- Portfolio hedging: Long-term protective puts to guard against prolonged downturns
- Stock substitute strategy: Buying LEAPS calls instead of shares to reduce capital outlay while maintaining upside exposure
Exam Tip: Gotchas
- LEAPS are long-dated options, not a separate product class. They have the same contract terms, are cleared by the OCC, and follow the same exercise/assignment rules. The only difference is the longer expiration. The exam may try to make LEAPS seem exotic or fundamentally different.
Think of it this way: Longer expiration means more time value, which means a higher premium. Same standardized terms as any other option. When a LEAPS contract enters its final year, it converts to a standard option.