LEAPS (finance)

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In finance, LEAPS is an acronym for Long Term Equity AnticiPation Security, a financial instrument identical to a regular option except it has a much longer term before expiration. LEAPS are available on approximately 450 equities and 10 indexes. As with traditional short term options, LEAPS are available in two types, calls and puts.

In this context, "option" refers to the listed option trading on an exchange such as the Chicago Board Options Exchange (CBOE). These differ greatly from the sort of options that employees of major corporations receive though their fundamental purpose is the same.

Options were originally created with expiry cycles of 3, 6, and 9 months, with no option lasting more than a year. These sorts of options still constitute the vast majority of option activity. LEAPS were created relatively recently and typically extend 2 years out. Equity LEAPS always expire in January. For example, if today was November 2005, one could buy a Microsoft January call option that would expire in 2006, 2007, or 2008. (The further out the expiration date, the more expensive the option.) The latter two are LEAPS. A relatively small number (about 1,000) of the most actively traded companies trade LEAPS.

LEAPS were formerly instruments solely for equities; however, more recently, equivalent instruments for indices have become available. These are also referred to as LEAPS.