CHAPTER 25 
LEAPS 
In an attempt to provide customers with a broader range of derivative products, the 
options exchanges introduced LEAPS. This chapter does a fair amount of reviewing 
basic option facts in order to explain the concepts behind LEAPS. The reader who 
has a knowledge of the preceding chapters and therefore does not need the review 
will be able to quickly skim through this chapter and pick out the strategically impor­
tant points. However, if one encounters concepts here that don't seem familiar, he 
should review the earlier chapter that discusses the pertinent strategy. 
The term LEAPS is a name for "long-term option." A LEAPS is nothing more 
than a listed call or put option that is issued with two or more years of time remain­
ing. It is a longer-term option than we are used to dealing with. Other than that, there 
is no material difference between LEAPS and the other calls and puts that have been 
discussed in the previous chapters. 
LEAPS options were first introduced by the CBOE in October 1990, and were 
offered on a handful of blue-chip stocks. Their attractiveness spurred listings on 
many underlying stocks on all option exchanges as well as on several indices. (Index 
options are covered in a later section of the book.) 
Strategies involving long-term options are not substantially different from those 
involving shorter-term options. However, the fact that the option has so much time 
remaining seems to favor the buyer and be a detriment to the seller. This is one rea­
son why LEAPS have been popular. As a strategist, one knows that the length of time 
remaining has little to do with whether a certain strategy makes sense or not. Rather, 
it is the relative value of the option that dictates strategy. If an option is overpriced, 
it is a viable candidate for selling, whether it has two years of life remaining or two 
months. Obviously, follow-up action may become much more of a necessity during 
the life of a two-year option; that matter is discussed later in this chapter. 
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