LEAPS are long-dated options that let a buyer hold a call or put position for more than a year. They can provide longer-term bullish exposure or portfolio protection, but they still expire. A correct view on the underlying is not enough: the price move must also justify the premium paid.
How LEAPS work
A call gives its holder the right to buy the underlying at the strike price; a put gives the right to sell. Standard equity contracts generally represent 100 shares, although corporate actions can change the deliverable. Equity LEAPS are American-style, allowing exercise before expiration. Index contracts can have different exercise and settlement terms.
The longer time to expiration usually makes a long-dated option more expensive than an otherwise comparable shorter-dated option. Its market value still responds to the underlying price, implied volatility, time, rates and dividends. Buying a call can require less initial cash than buying shares, while putting the entire option premium at risk.
Availability and expiration dates
Not every optionable security has LEAPS. Use the underlying's option chain to see the actual strikes and full expiration dates available. Check the bid and ask for the particular series; availability alone does not establish an active market or a tight spread.
There is no single January-only rule that covers every long-dated equity and index option. Cboe's equity and ETP calendar identifies when additional LEAPS series are listed, while index products can have other expirations, including December SPX LEAPS. Use the product's current listing calendar rather than a fixed historical example of when a new year is added.
A long-dated call example
Assume a stock trades at $50 and a $50-strike call expiring in 18 months costs $8 per share. One standard contract costs $800 before fees. At expiration, a $65 stock price gives the call $1,500 of intrinsic value and a $700 profit after the premium. At $55, the call is in the money but its $500 value leaves a $300 loss. At or below $50, the $800 premium is lost. The expiration breakeven is $58 before costs.
Before expiration, selling the call may recover remaining time value. Exercising instead requires the strike-price cash to buy the shares and gives up that remaining time value. Compare the two alternatives using available prices.
Using LEAPS in a strategy
A long-dated put can protect shares through its expiration. A long-dated call can form the long leg of a diagonal call spread, but it is not the same as holding the stock against a covered call: short-leg assignment can create stock and funding obligations.
Read investing with LEAPS calls and zero-cost collars for worked strategy examples.
