long term equity anticipation securities

long term equity anticipation securities

Long-Term Equity Anticipation Securities - LEAPS

LEAPS are an excellent way for a longer-term trader to gain exposure to a prolonged trend in a given security without having to roll several short-term contracts together. The ability to buy a call/put option that expires one or two years in the future is very alluring because it gives the holder exposure to the long-term price movement without the need to invest the larger amount of capital that would be required to own the underlying asset outright. These long-term options can be purchased not only for individual stocks, but also for equity indexes (such as the S&P 500).

Investment dictionary . Academic . 2012 .

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Long-term Equity Anticipation Securities

Универсальный русско-английский словарь . Академик.ру . 2011 .

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Long-Term Equity Anticipation Securities - LEAPS — Publicly traded options contracts with expiration dates that are longer than one year. Structurally, LEAPS are no different than short term options, but the later expiration dates offer the opportunity for long term investors to gain exposure to… … Investment dictionary

Equity (finance) — For equity securities, see Stock. Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management  … Wikipedia

History of private equity and venture capital — The history of private equity and venture capital and the development of these asset classes has occurred through a series of boom and bust cycles since the middle of the 20th century. Within the broader private equity industry, two distinct sub… … Wikipedia

Private equity in the 1990s — relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub industries, leveraged buyouts and venture capital experienced growth along parallel although… … Wikipedia

LEAPS — Long term equity anticipation securities. Long term options. The New York Times Financial Glossary ( Long Term Anticipation Securities) long term options. Bloomberg Financial Dictionary * * * Long term Equity Anticipation Securities. Long term … Financial and business terms

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LEAPS — long term equity anticipation securities долгосрочные ценные бумаги участия … Финансово-инвестиционный толковый словарь

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LEAPS (finance) — 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 … Wikipedia

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What are Long-Term Equity Anticipation Securities (LEAPS)?

Definition: A Long-Term Equity Anticipation Security (LEAPS) is an option’s contract that is set to mature in a period longer than one year. These contracts are an alternative for long-term investors looking for a way to get a wider time frame for their option’s investments.

What Does Long-Term Equity Anticipation Securities Mean?

Also known as LEAPS, these securities can be based on either individual instruments or indexes, such as the Dow Jones Industrial Average. Their purposes can vary widely depending on each investor. Some may use them as a hedge alternative to protect themselves from adverse long-term movements and others might use them as a way to get exposure to long-term investments without committing themselves fully to a stock or index.

The price of LEAPS varies depending on the market’s attitude towards the future price of the underlying asset. They work exactly the same as short-term options, the only difference being their expiration date.

For example, LEAPS call gives the investor the right but not the obligation to exercise the option at the strike price at any given point of its lifetime, which is the same as a regular call option. On the other hand, premiums charged for issuing a LEAPS are usually higher than those of regular option contracts, as its expiration period is longer than usual.

Let’s look at an example.

Mario is looking to buy a couple different shares from companies he knows will perform well over the long term. He doesn’t have enough capital to purchase that many shares, so he decided to buy a bunch of LEAPS options to build a long-term portfolio with these stocks.

The LEAPS calls he bought are set to mature in 2 years, meaning that Mario can exercise them at any given point if the price of the underlying asset is higher than the strike price. This would be a profitable scenario for him. Mario also has to estimate the cost of the premiums paid for the LEAPS as part of his return on investment, as the premiums are high for such contracts.

Thus, his profit for the transaction would be the difference between the fair market value of the stock and the strike price less the premiums paid on the options.

Long-Term Equity Anticipation Securities - LEAPS

What are 'Long-Term Equity Anticipation Securities - LEAPS'

Long-term equity anticipation securities are publicly traded options contracts with expiration dates that are longer than one year. Structurally, LEAPS are no different than short-term options, but the later expiration dates offer the opportunity for long-term investors to gain exposure to prolonged price changes without needing to use a combination of shorter-term option contracts. The premiums for LEAPs are higher than for standard options in the same stock because the increased expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit.

BREAKING DOWN 'Long-Term Equity Anticipation Securities - LEAPS'

Equity LEAPS allow investors to gain exposure to a specified stock without having to own or short sell shares of the underlying stock. Stock LEAPS calls allow investors to benefit from potential rises in a specified stock while using less capital. Similar to short-term call options, LEAPS calls allow investors to exercise their options before the expiration date, which allow the purchase of shares of the underlying stock at the strike price. Additionally, investors may sell the LEAPS calls to generate a profit.

LEAPS puts provide investors with a long-term hedge if they own the underlying stock. Additionally, LEAPS puts may be used to speculate on a potential fall in the underlying stock. For example, consider an investor who has long shares of Apple Inc. and wishes to hold them for a long period of time, but is afraid the stock may fall prior to that. The investor could purchase LEAPS puts on Apple to hedge against unfavorable moves in the long position in Apple.

Index LEAPS allow investors to hedge and invest in indices tracking the entire stock market or specified industry sectors. Index LEAPS allow investors to take a bullish stance using call options or a bearish stance using put options. Investors could also hedge their portfolios against adverse market moves with index LEAPS puts. For example, assume an investor holds a portfolio of securities, which primarily includes S&P 500 constituents. The investor believes there may be a market correction with the next two years, and therefore, the investor purchases index LEAPS puts on the S&P 500 Index to hedge against adverse moves.

Long-Term Equity Anticipation Securities

Leaps: An Investment Worth Jumping At

LEAPS stand for L ong-Term E quity A ntici P ation S ecurities. Like options, LEAPS are traded publicly and represent the right to buy or sell an underlying stock at a predetermined price. But unlike options, which have expiration dates measured in months, LEAPS expire in a matter of years. That means that LEAPS let investors make long-term plays long after options would have expired.

As with regular options, LEAPS plays aren’t relegated to individual stocks — LEAPS are also available for major indices like the S&P 500 and the Dow, and LEAPS are also now available for sector groups.

What’s So Great About LEAPS?

So what’s so great about having options that last for more than one year? Well, for starters, having more time until expiration means that any movements the underlying stock makes can going to be a lot bigger than anything you’d see with shorter-term options.

In other words, you’ve got a whole lot more gain potential with LEAPS than you do with plain options.

Because of this, LEAPS are an excellent way to make long-term leveraged plays on most widely held stocks. Because purchasing $1 of LEAPS gives you several dollars of investment leverage, going long with LEAPS is a popular way of making bets on a stock.

One of the best ways to achieve this over a longer period of time is by using “rolling LEAPS.” Even though LEAPS offer longer expiration dates than regular options, it may not be enough time for your investment to come to fruition. That’s where rolling LEAPS come in.

With rolling LEAPS, you rollover your LEAPS when they expire by selling your current LEAPS holdings and buy the equivalent one with a later expiration date. Theoretically, you can rollover your LEAPS indefinitely.

Remember, though that every time you roll your LEAPS over, you’ll have to pay for the new ones, meaning that if you do it for long stretches, your investment had better be going up enough to cover the cost of the LEAPS options!

Like options, LEAPS are also a great way to hedge the stock holdings in your portfolio — especially the ones you’re planning on holding for the long-term.

Like most things, LEAPS don’t come without a caveat. Since they give you more time to realize your gains, it stands to reason that LEAPS cost more than traditional options do.

How much more? Well, a General Electric call option that expires in May 2008 with a strike price of $30 costs $3.05, while the LEAP that expires in January 2010 costs $5.90 today.

If you don’t plan out your investment predictions well enough, a few bad LEAPS buy could end up cutting into your portfolio performance.

And even though LEAPS aren’t a foolproof investment tool, they are one that can put you “LEAPS and bounds” ahead of the competition if used well.

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