Quick Answer
LEAPS are ordinary options with expiration dates more than one year out; the exchange rule allows listings as far as 15 years, but the standard equity LEAPS most commonly traded and tested expire up to about three years out, typically the third Friday in January. They carry the same contract terms and OCC guarantee as standard options; the only difference is the longer life, which means a higher premium from extra time value.
Standard equity options expire within months. But what if an investor wants a longer time horizon? LEAPS extend the options timeline, typically up to about 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. Exchange rules permit listing LEAPS as far out as 15 years, but the standard equity LEAPS commonly traded and tested extend up to approximately 3 years
- Available as both calls and puts on individual equities and certain indexes
- Standard equity LEAPS typically expire on the third Friday in January of the expiration year
Exam Tip: Gotchas
- Standard equity LEAPS expire on the third Friday in January (not just any month); exchange rules technically permit longer-dated series, but this is the convention tested
How Do LEAPS Compare to Standard Options?
| Feature | LEAPS | Standard Options |
|---|---|---|
| Expiration | Standard equity LEAPS: third Friday of January, up to about 3 years out (exchange rules technically allow longer) | 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)
What Are LEAPS Used For?
- 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. Distractors may frame LEAPS as exotic or fundamentally different; they are not.
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.
What Should You Check on Exam Day?
- Standard equity LEAPS expire the third Friday in January, up to about three years out (exchange rules technically permit longer-dated series)
- They are not a separate product class: same OCC guarantee, same exercise/assignment rules, only a longer life
- The higher premium comes from more time value, not from added risk or a different structure
- LEAPS holders get no dividends or voting rights; they hold an option, not stock