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+Chapter 25: LEAPS 383 
+buyer to less risk of time decay on a daily basis. This is true because the extreme neg­
+ative effects of time decay magnify as the option approaches its expiration. Recall that 
+it was shown in Chapter 3 that time decay is not linear: An option decays more rap­
+idly at the end of its life than at the beginning. Eventually, a LEAPS put or call will 
+become a normal short-term equity option and time will begin to take a more rapid 
+toll. But in the beginning of the life of LEAPS, there is so much time remaining that 
+the short-term decay is not large in terms of price. 
+Table 25-2 and Figure 25-4 depict the rate of decay of two options: one is at­
+the-money (the lower curve) and the other is 20% out-of-the-money (the upper 
+curve). The horizontal axis is months of life remaining until expiration. The vertical 
+axis is the percent of the option price that is lost daily due to time decay. The options 
+that qualify as LEAPS are ones with more than 9 months oflife remaining, and would 
+thus be the ones on the lower right-hand part of the graph. 
+The upward-sloping nature of both curves as time to expiration wanes shows 
+that time decay increases more rapidly as expiration approaches. Notice how much 
+more rapidly the out-of-the-money option decays, percentagewise, than the at-the­
+money. LEAPS, however, do not decay much at all compared to normal equity 
+options. Most LEAPS, even the out-of-the-money ones, lose less than¼ of one per­
+cent of their value daily. This is a pittance when compared with a 6-month equity 
+option that is 20% out-of-the-money- that option loses well over 1 % of its value daily 
+and it still has 6 months of life remaining. 
+From the accompanying table, observe that the out-of-the-money 2-month 
+option loses over 4% of its value daily! 
+Thus, LEAPS do not decay at a rapid rate. This gives the LEAPS holder a 
+chance to have his opinion about the stock price work for him without having to 
+worry as much about the passage of time as the average equity option holder would. 
+An advantage of owning LEAPS, therefore, is that one's timing of the option pur­
+chase does not have to be as exact as that for shorter-term option buying. This can be 
+a great psychological advantage as well as a strategic advantage. The LEAPS option 
+buyer who feels strongly that the stock will move in the desired direction has the lux­
+ury of being able to wait calmly for the anticipated move to take place. If it does not, 
+even in perhaps as long as 6 months' time, he may still be able to recoup a reason­
+able portion of his initial purchase price because of the slow percentage rate of decay. 
+Do not be deluded into believing that LEAPS don't decay at all. Although the 
+rate of decay is slow (as shown previously), an option that is losing 0.15% of its value 
+daily will still lose about 25% of its value in six months. 
+Example: XYZ is at 60 and there are 18-month LEAPS calls selling for $8, with a 
+striking price of 60. The daily decay of this call with respect to time will be minus-