What Are LEAPS Options and How Do They Work?
LEAPS — Long-Term Equity Anticipation Securities — are standard options contracts with expiration dates set more than 12 months into the future. They behave exactly like regular calls or puts, but the extended time horizon changes how traders use them strategically.
In the ExpiredOptions portfolio: I began using LEAPS in 2023 as another way to gain long-term exposure to companies I am interested in owning. They are not the foundation of my portfolio. My core strategy remains buy and hold. I view LEAPS as a trial period toward potentially owning shares. They give my investment thesis time to develop while requiring less initial capital than purchasing 100 shares outright.
Why I Use LEAPS
I use LEAPS when I have a long-term bullish outlook on a company but am not yet ready to commit the capital required for a full 100-share position.
The lower initial capital requirement gives me time to follow the company, management, earnings, and execution of the investment thesis. If my conviction remains intact and the position performs well, I may exercise the contract near expiration and own the shares.
Choosing the Right Strike: The Delta Target
The strike price determines how closely your LEAPS call mirrors the behavior of owning stock. This is measured by delta — a number between 0 and 1 that tells you how much the option price moves for every $1 move in the underlying stock.
I generally target approximately 0.70 delta when purchasing LEAPS. This gives the contract meaningful sensitivity to movements in the underlying stock while requiring less capital than purchasing 100 shares.
Delta can provide an estimate of how sensitive an option is to a $1 move in the underlying stock at a specific point in time. However, delta changes as the stock price, time to expiration, and other market conditions change. It should not be used as a fixed multiplier to project a LEAPS return over a large stock move.
Understanding Theta and LEAPS
LEAPS still lose extrinsic value as time passes. Because they have longer expirations, time decay is generally slower earlier in the contract’s life and becomes increasingly important as expiration approaches.
This is one reason I typically buy the furthest expiration available. My goal is to give the underlying company as much time as practical for my investment thesis to develop.
I do not view unrelated CSP premium as “offsetting” the theta of a LEAPS contract.
Selecting Expiration: Furthest Available
I generally buy the furthest expiration available. The additional time gives my investment thesis more opportunity to develop and reduces the pressure of being correct within a short window.
I do not automatically exit or roll a LEAPS position at 90 DTE. My goal with successful positions may be to exercise the contract near expiration and convert the position into shares. Each LEAPS position is evaluated based on the company, my conviction, the remaining time, and the capital required to exercise.
Why I Call LEAPS a Trial Period
I think of LEAPS as a trial period toward potentially owning a company. During the life of the contract, I continue following earnings, management, company execution, and my original investment thesis.
A LEAPS purchase does not mean I am committed to owning the stock forever. If the thesis changes, I can close the position. If the company executes and my conviction remains strong, I may exercise the contract near expiration and add the shares to my long-term portfolio.
Exercising a LEAPS call requires enough capital to purchase 100 shares at the strike price for each contract exercised. I consider that future capital requirement when sizing LEAPS positions. Exercise is a potential outcome, not a guarantee.
Risks to Understand Before Buying LEAPS
- Total loss is possible. If the stock falls below your strike price and stays there through expiration, the LEAPS expires worthless. You lose the full premium paid.
- Volatility contraction hurts. When implied volatility (IV) falls sharply — often after earnings — LEAPS values can drop even if the stock stays flat. This is vega risk.
- Liquidity can be thin. LEAPS on smaller stocks may have wide bid/ask spreads. Always use limit orders and check open interest before entering.
- No dividends. Unlike stock holders, LEAPS owners do not receive dividends from the underlying company.
- Opportunity cost. A LEAPS position can tie up capital for years while the underlying company underperforms. Even if the contract does not expire worthless, that capital may have generated a better return elsewhere.
- Expiration risk. Unlike common stock, a LEAPS contract has a defined expiration date. A long-term investment thesis can ultimately prove correct after the option has already expired.
See Real LEAPS Positions in Action
The public Expired Options LEAPS tracker documents my publicly reported LEAPS positions, including entry information, strike price, expiration, cost basis, and current position data.
⚠️ This article is for educational purposes only. Options trading involves substantial risk of loss. Past performance shown in any tracker does not guarantee future results. Not financial advice.