LEAPs - Long-term Equity AnticiPation Securities

Leverage is one of the great advantages that options provide. For a small amount of money, you can control a large holding in an asset. You can significantly increase your rate of return, since you participate in the gain from the price movement of the underlying asset for a fraction of the cost of that asset.

One must be careful to avoid a common mistake. To allow for the asset to make its move, make sure that you buy enough time. Because you know the asset will make its move in a few days or weeks, it can be tempting to buy the cheap option with one month expiration or less. The market is always full of surprises. To give yourself a margin of safety in case your expected move is delayed, it is generally better to allow at least two, three or four months. The additional time reduces your risk significantly, because it doesn't cost that much more (its not a linear function).

LEAPs are Long-term Equity. An option whose expiration is more than 9 months away is a LEAP. These options always expire in January and can usually be bought one, two or three years out.

People can take advantage of long-term moves in an asset at a fraction of the cost of owning the asset by buying LEAPs.