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+Chapter 25: LEAPS 403 
+passed, the straddle seller could reasonably expect to have a profit of about 40% of 
+the original straddle price. However, if one had sold a 2-year LEAPS straddle, and 
+the stock were relatively unchanged after two months, he would only have a profit of 
+about 7% of the original sale price. This should not be surprising in light of what has 
+been demonstrated about the decaying of long-term options. It should make the 
+straddle seller somewhat leery of using LEAPS, however, unless he truly thinks the 
+options are overpriced. 
+Second, consider follow-up action. Recall that in Chapter 20, it was shown that 
+the bane of the straddle seller was the whipsaw. A whipsaw occurs when one makes 
+a follow-up protective action on one side (for instance, he does something bullish 
+because the underlying stock is rising and the short calls are losing money), only to 
+have the stock reverse and come crashing back down. Obviously, the more time left 
+until expiration, the more likely it is that a whipsaw will occur after any follow-up 
+action, and the more expensive it will be, since there will be a lot of time value pre­
+mium left in the options that are being repurchased. This makes LEAPS straddle 
+selling less than attractive. 
+LEAPS straddles may look expensive because of their large absolute price, and 
+therefore may appear to be attractive straddle sale candidates. However, the price is 
+often justified, and the seller of LEAPS straddles will be fighting sudden stock move­
+ments without getting much benefit from the passage of time. The best time to sell 
+LEAPS straddles is when short-term rates are high and volatilities are high as well 
+(i.e., the options are overpriced). At least, in those cases, the seller will derive some 
+real benefit if rates or volatilities should drop. 
+SPREADS USING LEAPS 
+Any of the spread strategies previously discussed can be implemented with LEAPS 
+as well, if one desires. The margin requirements are the same for LEAPS spreads as 
+they are for ordinary equity option spreads. One general category of spread lends 
+itself well to using LEAPS: that of buying a longer-term option and selling a short­
+term one. Calendar spreads, as well as diagonal spreads, fall into that category. 
+The combinations are myriad, but the reasoning is the same. One wants to own 
+the option that is not so subject to time decay, while simultaneously selling the 
+option that is quite subject to time decay. Of course, since LEAPS are long-term and 
+therefore expensive, one is generally taking on a large debit in such a spread and 
+may have substantial risk if the stock performs adversely. Other risks may be pres­
+ent as well. As a means of demonstrating these facts, let us consider a simple bull 
+spread using calls.