Investing in LEAPS (Long-Term Options)

Investing in LEAPS (long-term options) can be a great way to hedge against market declines over a longer period of time. Because these options have longer expiration dates, you are given more time to react to any significant changes in the underlying security’s price. This can make LEAPS an excellent tool for long-term investors who are not necessarily interested in short-term investments.

When you purchase an LEAPS call, you will be investing in a security with a strike price that is far from the current stock price. You will also have to decide the expiration date and the number of calls that you want to purchase. You can also buy LEAPS put options to hedge against any potential declines in the underlying stock. However, unlike traditional options, LEAPS puts do not receive dividends or voting rights from the underlying security. You will only receive the cost of the option (known as the “premium”) when you buy the option.

LEAPS are available for indices as well as individual stocks. These options are much more expensive than traditional options, but the premiums can be a great source of investment income. LEAPS are also a good choice for strategic traders who want to invest in a longer-term portfolio. LEAPS also allow you to take a more bullish or bearish stance on the market. If you’re interested in investing in LEAPS, you will need to be sure that you have the necessary expertise and experience to invest successfully.

LEAPS are not for every investor. You will need to have a large amount of capital available and a strategy that you’re comfortable with. For example, an investor might own a portfolio of technology stocks valued at $2,000,000. He believes the current bull market is not yet over and wants to protect the growth of his investment until he reaches retirement age. To protect the portfolio, he would need to purchase four LEAPS put options, which would protect $500,000 worth of shares.

LEAPS are available for indices, equity indices, and individual stocks. In addition to protecting against significant market declines, LEAPS can also be used to capture high premiums. For example, the current value of the NASDAQ 100 is about $5,000. A 12-month contract near the money costs 9% of the underlying investment. LEAPS also have a wider spread between the bid and ask price.

The main risk for LEAPS is the cost of the initial investment. Since the premium is non-refundable, you are putting up more money at the beginning of the transaction than you would with a shorter-term option. You also have to bear in mind that LEAPS are more prone to expiring worthless than other types of options.

The downside to LEAPS is that they do not provide the same degree of liquidity as a share of stock. Because of this, LEAPS are best suited to strategic investors who can afford to invest a large sum of money in a long-term position. LEAPS will also not provide regular dividends, but you will have more control over your shares with less money.