LEAPS

LEAPS (Long-term Equity Anticipation Securities) are simply options with expiration dates more than one year away. They work exactly like any other option — a LEAPS call or put follows the same mechanics as a short-dated one — but the extra time changes how the option behaves. Because time decay accelerates as expiration nears, a LEAPS contract sitting many months or years out is still in the slow, early part of that decay curve, and a deep in-the-money LEAPS call in particular behaves a lot like owning the underlying stock outright, moving nearly dollar-for-dollar with it. This stock-like behavior at a fraction of the capital is exactly what makes LEAPS the backbone of the poor man's covered call, which uses a deep in-the-money LEAPS call as a substitute for owning 100 shares. LEAPS still expire and still carry real time decay, especially as their own expiration date eventually approaches.