What Are LEAPS Options? | How Do Options Work?

LEAPS (Long-Term Equity AnticiPation Securities) are listed options with long expirations, typically more than a year and up to about three years away. Cboe introduced them in 1990; mechanically they work exactly like ordinary calls and puts, just with much more time until expiration.

In short: a LEAPS is a long-dated option. Cboe’s specifications for equity LEAPS allow expirations up to 39 months from initial listing, with a January expiration. More time means a higher premium, slower daily time decay, and, for US investors, the possibility of long-term capital gains treatment if held more than a year. The risk of losing the whole premium does not go away.

How they are listed

On US exchanges, equity LEAPS typically expire in January, on the standard monthly expiration date. Index LEAPS can use other months, such as December for SPX. As a LEAPS gets close to expiry it simply becomes an ordinary listed option on the chain. In Canada, the Montreal Exchange can list equity options with expiries up to two years out, plus an annual January expiry, as of November 2026. How expiration cycles fit together is covered in strike prices and expiration dates.

Why they cost more

A longer life gives more chance of a large move, so LEAPS carry much more time value than short-dated options at the same strike.

Maple Widgets Inc. (a hypothetical company) trades at $50. Illustrative prices for a $50 call:

Expiration	Premium per share	Cost per contract
1 month	$2.40	$240
6 months	$5.60	$560
2 years	$10.50	$1,050

These are hypothetical numbers for illustration; real prices depend on implied volatility, interest rates, and dividends. Note that the two-year option costs much less than eight times the one-month option: time value grows more slowly than time itself.

Breakeven and decay

For the two-year call above, breakeven at expiration is $50 + $10.50 = $60.50, a 21% rise in two years. If Maple Widgets is at $50 at expiration, the whole $1,050 is lost.

Daily time decay on a LEAPS is small at first and accelerates in the final months, like any option. See theta and time decay.

Why people use them

As a stock substitute. A deep in-the-money LEAPS call behaves somewhat like the shares, for less cash up front. That leverage cuts both ways.
As a long-term hedge. A long-dated put can protect shares for a year or more, at a cost.
Tax timing (US). A bought option held more than one year can produce a long-term capital gain. See how options are taxed in the US.

The risks

Total loss of premium, which is a larger dollar amount than for short-term options.
Wider bid-ask spreads, because long-dated series often trade less.
Sensitivity to implied volatility over a long period. See implied volatility.
Contract adjustments if the company splits, merges, or pays a special dividend during the long life of the option.