What is LEAPS?
LEAPS is a catchy acronym for the slightly less sexy phrase Long-term Equity AnticiPation Securities. These are basically stock options that have an expiry date of longer than a year, unlike more traditional options which usually expire within six months or so.
Where have you heard about LEAPS?
LEAPS are generally only used by experienced traders who fully understand options strategy. They give long-term investors a way of experiencing prolonged price moves without having to trade in and out of shorter-term option contracts.
What you need to know about LEAPS.
If you buy LEAPS, they’ll cost more than standard options in the same stock because the longer expiry date gives the underlying asset more time to make you a healthy profit.
As a LEAPS owner though, you won’t be paid dividends and you won’t have voting rights like normal stockholders. LEAPS always expire in January but can be bought and sold at any time.
The LEAPS strategy isn’t appropriate for most investors as it’s a bigger investment risk than simply buying the stock outright. But aggressive traders can make huge gains if they’re willing to risk everything. Of course, because of the risks involved there could also be big losses.