Explore Your Options by Tom Gentile
LOOK BEFORE YOU LEAP
As we turn the last page of yet another year behind us, typically we start thinking of the year ahead of us — that would be 2015. When most traders think of the following year, they think long-term. Long-term in the option world could mean anything to anyone, but all option traders agree that LEAPS are a long-term strategy. LEAPS, a product of the Chicago Board Options Exchange (CBOE), stands for Long-term Equity AnticiPation Securities, or long-term option contracts that allow investors to establish positions that can be maintained for up to three years.
Sacrificing gamma when using LEAPS
There are pros and cons to using LEAPS. Let me illustrate these by using a hypothetical example.