LEAP or LEAPS stands for Long Term Equity Anticipation securities. It refers to options contracts with expiration dates which are between one to three years from the date of issue. LEAP is similar to regular options contract except for the longer expiration date.
Like a normal options contract, a LEAP contract gives a buyer the ‘right’, but not the obligation, to purchase or sell (call or a put respectively) the underlying asset at the pre-specified price on or before its expiration date. A LEAP contract is used as a hedging strategy due to its long term nature. The premium for a LEAP contract is higher than that for normal options contract, but lower than the cost of underlying shares.
