Definition of LEAP

A "LEAP" refers to a Long-Term Equity Anticipation Security, which is a type of options contract with an expiration date that is significantly longer than standard options - typically more than one year out. LEAPs function just like regular options, offering the right but not the obligation to buy (call) or sell (put) an underlying stock at a specific price before expiration.

The key difference? Time.

Most standard options expire within weeks or months. LEAPs, on the other hand, can have expirations as far as 2 to 3 years away. That extended timeline makes them attractive to investors looking to take longer-term directional positions without committing to buying or shorting the stock outright.

For example:
If a stock is trading at $50, and you believe it could rise significantly over the next 18 months, you might buy a $60 LEAP call that expires in January of the following year. This gives you exposure to that move while limiting your initial capital outlay.

LEAPs are often used for:

Speculation on long-term price movement

Hedging equity positions

Synthetic investing, as a lower-cost alternative to holding shares outright

They are typically available on heavily traded stocks and ETFs, and they become increasingly liquid as the underlying asset gains popularity.

Keep in mind: While LEAPs reduce the pressure of near-term expiration, they still carry risk, including time decay (though slower than shorter-dated options) and price volatility of the underlying stock.

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