LEAPS.

In plain English

LEAPS are long-dated listed options, structured exactly like ordinary calls and puts but with expirations that can stretch out a year or more ahead of the trade date. The long runway changes which Greeks matter. Daily time decay is small compared with a weekly option, while sensitivity to interest rates and to implied volatility is much larger. Premiums are far higher in dollar terms, because the contract is buying much more time. As a LEAPS contract ages it eventually becomes an ordinary short-dated option and starts behaving like one.

01Why it matters

The long horizon removes the timing pressure that ends most short-dated option positions, but it does so by charging much more premium up front.

02The math, step by step

A one month call on a stock might cost 2.00 while a two year call at the same strike costs 12.00. The long contract loses maybe a penny or two a day to time decay instead of several cents, but it ties up 1,200 per contract rather than 200.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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