Long-Term Equity Anticipation Securities (LEAPS)

A Long-Term Equity Anticipation Securities (LEAPS) is a call option contract that gives the holder the right, but not the obligation, to buy a specified number of shares of a particular stock at a predetermined price (called the strike price) on or before a specific date (called the expiration date). LEAPS are typically used by investors who believe that the underlying stock will increase in value over time.

LEAPS are different from traditional call options in several ways. First, LEAPS have a longer expiration date than traditional call options. This allows investors to take advantage of longer-term trends in the underlying stock price. Second, LEAPS are typically more expensive than traditional call options. This is because they offer more time for the underlying stock price to increase in value.

LEAPS can be a valuable tool for investors who are looking to gain exposure to a particular stock without having to commit to a long-term investment. However, it is important to remember that LEAPS are complex financial instruments and that they carry a high degree of risk. Investors should carefully consider their investment objectives and risk tolerance before trading LEAPS.

Here are some additional details about LEAPS:

• LEAPS are typically issued on the Standard & Poor's 100 (S&P 100) Index, the Nasdaq-100 Index, and the Russell 2000 Index. However, they can also be issued on individual stocks.
• The strike price of a LEAP is typically set at a premium to the current stock price. The premium is determined by a number of factors, including the time to expiration, the volatility of the underlying stock, and the current interest rate.
• LEAPS can be purchased on any trading day. However, they can only be exercised on the expiration date.
• If the underlying stock price is below the strike price on the expiration date, the LEAP will expire worthless.
• LEAPS can be sold at any time before the expiration date. However, the price of a LEAP will decline as the expiration date approaches.

LEAPS can be a valuable tool for investors who are looking to gain exposure to a particular stock without having to commit to a long-term investment. However, it is important to remember that LEAPS are complex financial instruments and that they carry a high degree of risk. Investors should carefully consider their investment objectives and risk tolerance before trading LEAPS.