410 Part Ill: Put Option Strategies 
increase in price. As usual, volatility has a major effect on the price of an option, and 
LEAPS are no exception. Even small changes in the volatility of the underlying com­
mon stock can cause large price differences in a two-year option. The rate of decay 
due to time is much smaller for LEAPS, since they are long-term options. Finally, the 
deltas of LEAPS calls are larger than those of short-term calls; conversely, the deltas 
of LEAPS puts are smaller. 
Several common strategies lend themselves well to the usage of LEAPS. A 
LEAPS may be used as a stock substitute if the cash not invested in the stock is 
instead deposited in a CD or T-bill. LEAPS puts can be bought as protection for 
common stock. Speculative option buyers will appreciate the low rate of time decay 
of LEAPS. LEAPS calls can be written against common stock, thereby creating a 
covered write, although the sale of naked LEAPS puts is probably a better strategy 
in most cases. Spread strategies with LEAPS may be viable as well, but the spreader 
should carefully consider the ramifications of buying a long-term option and selling 
a shorter-term one against it. If the underlying stock moves a great distance quickly, 
the spread strategy may not perform as expected. 
Overall, LEAPS are not very different from the shorter-term options to which 
traders and investors have become accustomed. Once these investors become famil­
iar with the way these long-term options are affected by the various factors that 
determine the price of an option, they will consider the use of LEAPS as an integral 
part of a strategic arsenal.