SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 10 – LEAPS Options

LEAPS

Long-Term Equity Anticipation Securities; long-term options on stocks or stock indexes, with the same privileges as regular options but longer expiration.

Equity LEAPS Contract Value

100 shares of the underlying stock.

Index LEAPS Contract Value

$100 × index value, settled in cash.

Premium Quotation for LEAPS

1 point = $100.

Equity LEAPS Expiration

Most 3+ years (≈39 months) from listing; expire on third Friday of expiration month.

Index LEAPS Expiration

Most 3+ years (≈39 months); expire on third Friday of expiration month.

Exercise Style:
• Equity and OEX LEAPS: American style → can exercise anytime until expiration.
• SPX LEAPS: European style → can exercise only on expiration date.

Exercise Settlement:
• Equity LEAPS: settle in stock next business day.
• Index LEAPS: settle in cash next business day.

Position Limits

Aggregated for all equity options (short- & long-term) on the same underlying stock.

Hedging with OEX LEAPS

Buying OEX LEAPS puts hedges a large portfolio of large-cap equities.

Margin for LEAPS

LEAPS with >9 months to expiration can be purchased on margin; requirement = 75% of premium value.

What are LEAPS?

Long-term options on stocks or stock indexes with extended expiration.

How many shares does an Equity LEAPS contract represent?

100 shares.

How is an Index LEAPS contract valued?

$100 × index value, settled in cash.

What is the premium value of 1 point in a LEAPS option?

$100.

How long is the typical expiration for LEAPS?

≈3+ years (39 months).

Which LEAPS have American exercise style?

Equity and OEX LEAPS.

Which LEAPS have European exercise style?

SPX LEAPS.

When do LEAPS settle after exercise?

Next business day: stock for Equity LEAPS, cash for Index LEAPS.

Can LEAPS be used for hedging?

Yes; e.g., OEX LEAPS puts for large-cap equity portfolios.

What is the margin requirement for LEAPS with more than nine months to expiration?

75% of the premium value.