LEAPSLEAPS
LEAPS are long-dated options with expirations up to about three years away. A LEAPS call gives exposure to a stock's rise for less capital than buying the shares, while the long time frame gives the trade more time to work.
Most options expire within weeks or months, which leaves little room for a thesis to play out. LEAPS stretch that time to a year or more. That makes them popular as a cheaper stand-in for owning stock, or as long-term protection. This entry explains how LEAPS work, why they cost more than short-dated options and the trade-offs.
- Category
- Derivatives
- Reading time
- 4 min
- Also called
- Long-term equity anticipation securities, LEAPS options, Long-dated options
- Updated
LEAPS in plain words
LEAPS give the buyer the right to buy (a call) or sell (a put) shares at a set price on or before a given date, like ordinary options.1
The difference is time: a LEAPS call can give the right to buy shares up to three years into the future.2
LEAPS calls let investors benefit from a stock's rise while putting up less capital than buying the shares.2
How a LEAPS trade works, step by step
Choose a long-term view
A thesis for the next one to three years.
Pick an expiry
Further out costs more but gives more time. See Expiration Date.
Pick a strike
Deep in-the-money calls behave most like stock. See Strike Price.
Pay the premium
Higher than short-dated options. See Option Premium.
Monitor time decay
Slow at first, faster near expiry. See Option Greeks.
Exit or exercise
Sell the option or exercise it for shares.
Worked examples
Example 1 — LEAPS vs buying stock
74% less capitalStock at $100. Buying 100 shares costs $10,000. A 2-year $80 LEAPS call costs $26 ($2,600).
| Stock outlay | $10,000 |
| LEAPS outlay | $2,600 |
| Capital saved | $7,400 |
LEAPS calls let investors gain from price rises while risking less capital than buying the stock.2
Example 2 — The stock rises
+$2,400Same LEAPS. At expiry the stock is $130.
| Option value | ($130 − $80) × 100 = $5,000 |
| Profit | $5,000 − $2,600 = $2,400 (+92%) |
| Stock profit for comparison | $3,000 (+30%) |
If the stock rises above the strike, the holder can exercise to buy below market or sell the LEAPS for a profit.2
Example 3 — The stock falls
−$2,600Same LEAPS. At expiry the stock is $75, below the strike.
| Option value | $0 |
| Loss | −$2,600 (−100%) |
| Stock loss for comparison | −$2,500 (−25%) |
Losses are capped at the premium, but in percentage terms the option can lose everything while the stock only falls. See Leverage.
LEAPS vs short-dated options
| Aspect | LEAPS | Short-dated options |
|---|---|---|
| Time to expiry | About 1–3 years | Days to months |
| Premium | Higher | Lower |
| Time decay per day | Slow | Fast |
| Typical use | Long-term views | Short-term trades |
How investors use LEAPS
Stock replacement
Long exposure with less capital.
Diversification
Spreading capital across more positions.2
Long-term hedges
LEAPS puts to protect a portfolio. See Hedging.
Poor man's covered call
Selling short-term calls against a LEAPS call. See Covered Call.
Advantages and disadvantages
Advantages
- More time for a thesis to work.
- Less capital than buying shares.
- Slower time decay than short options.
Disadvantages
- Higher premiums than short-dated options.
- No dividends or voting rights.
- Can expire worthless.
- Wider bid-ask spreads on some names.
Going deeper
Read as far as you need. Each level builds on the one before it.
Just long options
Beginner
Apart from their longer life, LEAPS work like regular listed options with standard strikes and expiry rules. See Options.
American style
Intermediate
Equity LEAPS are American-style, so they can be exercised and settled in shares before expiration.1 See American and European Options.
Delta and time value
Advanced
Deep in-the-money LEAPS calls have a high delta and little time value, so they track the stock closely; out-of-the-money LEAPS are cheaper but mostly time value. See Option Greeks.
Common mistakes
Buying far out of the money
Cheap, but most expire worthless.
Ignoring the spread
Wide bid-ask spreads can be costly. See Bid-Ask Spread.
Forgetting dividends
Option holders don't receive them.
Holding into the last months
Time decay speeds up near expiry.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- LEAPS are options with expiries of up to about three years.
- They let investors control stock with less capital.
- They cost more but decay more slowly than short options.
- Equity LEAPS are American-style.
- The whole premium can still be lost.
Frequently asked questions
What does LEAPS stand for?
Are LEAPS less risky than short-term options?
Do all stocks have LEAPS?
Further learning
- Options
Calls and puts basics.
- Option Greeks
Delta and time decay.
- Covered Call
Pairing LEAPS with short calls.
- Hedging
Using LEAPS puts as insurance.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Options Industry Council (OCC). How LEAPS Work (opens in a new tab) Checked .
- Options Industry Council (OCC). LEAPS: Options for the Long Term (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.