How LEAPS® Work

 

LEAPS® are simply long-term options that expire up to two years and eight months in the future, as opposed to shorter-dated options that expire within one year.

LEAPS® grant the buyer the right to buy, in the case of a call, or sell, in the case of a put, shares of a stock at a predetermined price on or before a given date. Equity LEAPS® are American-style options. Therefore, they may be exercised and settled in stock prior to expiration. The expiration date for equity LEAPS® is the Saturday following the third Friday of the expiration month, which is typically in January.

How Leaps Work

LEAPS® are quoted and traded just like any other exchange-listed option. In fact, many of the features of LEAPS® are the same for shorter-term options:

  • Number of shares covered by the contract (100)
  • Exercise and assignment procedures
  • Trading procedures
  • Margin and commission costs

LEAPS® differ from shorter-term options in several ways including availability, pricing, time erosion vs. delta effect and strategies.

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