Long-Term Equity AnticiPation Securities (LEAPS)
Chapters in this video
- 0:00 The 39-month timeline and what Carla is buying
- 1:03 LEAPS defined: ordinary options with longer lives
- 1:58 Third Friday in January expiration convention
- 3:25 Higher premiums and the time value connection
- 4:53 Dividends, voting rights, and the ownership trap
- 5:47 Three LEAPS strategies speculation, hedging, stock substitute
- 6:15 Conversion to standard options in the final year
- 7:05 Rapid-fire exam recap
What this video covers
- What makes an option a LEAPS: expiration more than one year from issuance, with standard equity LEAPS commonly tested at 39 months
- Why the third Friday in January is the non-negotiable expiration convention for standard equity LEAPS, not a random month
- How LEAPS premiums compare to standard options, and why higher cost reflects more time value rather than any product disadvantage
- What stays identical between LEAPS and standard options: 100-share contract size, American-style exercise, and Options Clearing Corporation (OCC) clearing and guarantee
- Why LEAPS holders receive no dividends and no voting rights, since an option is not equity ownership until exercise
- The three primary uses for LEAPS: long-term speculation, portfolio hedging with protective puts, and the stock substitute strategy with LEAPS calls
- When a LEAPS contract converts to a standard short-term option, and why LEAPS are never a separate or exotic product class
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