Explore Your Options by Tom Gentile
LEAPING INTO CALENDAR SPREADS?
I see some Leap options are not that expensive given the amount of time theyíve got ó about two years. There are 23 months you can sell against it. Thatís got to be a good trade. Where am I wrong? I know there must be things that I havenít properly thought through.
For example, Iím looking at a calendar spread with 2011 leaps. The far month (January 2011) costs me about $4 to enter, and the near month (February 2009) brings in about 70 cents. Is this a bad idea? What are potential pitfalls?
Long-term Equity Anticipation Securities, or Leaps, are option contracts with one or two years of life remaining. Many of the more actively traded equities, exchange traded funds (Etfs), and indexes have Leap contracts available and they make great tools for certain option strategies.