Chapter 25: LEAPS 375 
The table also shows that only three of the discrepancies are not large. Two 
involve the stock price change. If the stock changes in price by 1 point, neither the at­
the-money nor the in-the-money options behave very differently, although the at-the­
money LEAPS do jump by 70 cents. The observant reader will notice that the top line 
of the table depicts the delta of the options in question; it shows the change in option 
price for a one-point change in stock price. The only other comparison that is not 
extremely divergent is that of volatility change for the at-the-money option. The 3-
month call changes by 21 cents while the LEAPS changes by nearly ½ point. This is 
still a factor of two-to-one, but is much less than the other comparisons in the table. 
Study the other comparisons in the table. The trader who is used to dealing with 
short-term options might ordinarily ignore the effect of a rise in interest rates of ½ 
of 1 %, of a 25-cent increase in the quarterly dividend, of the volatility increasing by 
a mere 1 %, or maybe even of the stock moving by one point (only if his option is out­
of-the-money). The LEAPS option trader will gain or suffer substantially and imme­
diately if any of these occur. In almost every case, his LEAPS call will gain or lose ½ 
point of value - a significant amount, to be sure. 
LEAPS STRATEGIES 
Many of the strategies involving LEAPS are not significantly different from their 
counterparts that involve short-term options. However, as shown earlier, the long­
term nature of the LEAPS can sometimes cause the strategist to experience a result 
different from that to which he has become accustomed. 
As a general rule, one would want to be a buyer of LEAPS when interest rates 
were low and when the volatilities being implied in the marketplace are low. If the 
opposite were true (high rates and high volatilities), he would lean toward strategies 
in which the sale of LEAPS is used. Of course, there are many other specific consid­
erations when it comes to operating a strategy, but since the long-term nature of 
LEAPS exposes one to interest rate and volatility movements for such a long time, 
one may as well attempt to position himself favorably with respect to those two ele­
ments when he enters a position. 
LEAPS AS STOCK SUBSTITUTE 
Any in-the-money option can be used as a substitute for the underlying stock. Stock 
owners may be able to substitute a long in-the-money call for their long stock. Short 
sellers of stock may be able to substitute a long put for their short stock. This is not 
a new idea; it was discussed briefly in Chapter 3 under reasons why people buy calls. 
It has been available as a strategy for some time with short-term options. Its attrac­
tiveness seems to have increased somewhat with the introduction of LEAPS, howev-