LEAPS or Long Term Equity Anticipation Securities, are long term options that last anywhere from one to three years before they expire. LEAPS are available on stock indexes (such as the S&P500 in the US, or the FTSE100 in Europe), and on individual stocks. LEAPS are identical to regular (short term) options, with the exception that they can be held for up to three years.
Using LEAPS
Like regular options, LEAPS can be used to hedge (i.e. insure) an already existing trade, or they can be used to trade a stock for the long term without actually owning the underlying stock (see my article about trading stocks using options).
Where regular options are designed for day or swing trading (short to medium term trading), LEAPS are designed for position trading (long term trading). As with regular options, there are some significant advantages to stock trading using LEAPS, including much lower margin requirements, and a much improved risk to reward ratio.
