This article was originally published in The Option Strategist Newsletter Volume 1, No. 4 on February 13, 1992.
LEAPS is an acronym for Long-term Equity AnticiPation Securities. This is a wordy name for "long-term option". A LEAPS (or is it a LEAP?) is nothing more than a listed call or put option that is issued with two or more years of time remaining. It is therefore a longer-term option than one is used to dealing with. Other than that, there is no material difference between LEAPS and other calls and puts. Strategies involving long-term options are not substantially different from those involving shorter-term options. However, the fact that the option has so much time remaining seems to favor the buyer and be a detriment to the seller. This is one reason why LEAPS have been popular.
This article was originally published in The Option Strategist Newsletter Volume 1, No. 23 on November 27, 1992.
The article that appears on our front page is generally meant to be informative and/or instructional. It often ties in with current market conditions, which means the topics are quite specific. We do, however, have a broader array of topics that we insert when market conditions warrant. This is one of those times. We will discuss the use of LEAPS (long-term options) as a substitute for stock ownership. Many brokerage firms and investment publications are proponents of this strategy. However, as you will see, it sometimes is over-rated.
This article was originally published in The Option Strategist Newsletter Volume 3, No. 4 on February 24, 1994.
One of our readers recently asked some astute questions concerning the implied volatility of long-term options versus short-term options. We thought it might make for a thought-provoking article. It is generally the case that implied volatilities of longer-term options are higher than those of short-term options (except when the underlying security has been very volatile in the near term). The relevant questions one might ask are "Why does this occur?" and "Should this occur?". We'll try to answer those questions in this article, although — as you'll see — those are not necessarily easy questions to answer in a practical sense, even though they might be in a theoretical sense.
This article was originally published in The Option Strategist Newsletter Volume 10, No. 5 on March 8, 2001.
We receive a lot of questions here at McMillan Analysis Corporation – most of them come in from the Q&A section on our web site. The more generic (and interesting) questions and answers get posted on the site. Those that are specific get a personal email answer. One way or the other, they all receive an answer – although we do not comment on specific stocks or specific positions in your trading account. We also hear a number of questions at seminars (so far this year, we’ve attended four seminars), and that is where we got the idea for this article. One topic that people seem to want to discuss is that of “covered writing against LEAPS.” Many people think this strategy has little or no risk, based on some sort of historical studies.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.
With the market being so high, many individual investors and institutional money managers as well are wondering what to do with these profits. Completely exiting the market is not a viable alternative for many, and is prohibited by charter for some institutions. However, there is a way in which one can reduce his downside exposure while still retaining upside profit potential — he can sell his stock and replace it with LEAPS call options.
