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LEAPS options explained

A LEAPS is just an option with a long life — a year or more to expiry. The extra time buys you room to be right slowly. It costs you a much bigger price tag and a value that can still reach zero.

Options guide · 8-minute read · Updated 2026-10-29

What a LEAPS actually is

LEAPS stands for Long-term Equity AnticiPation Securities. Ignore the name. It means one thing: an option contract that expires a year or more from today, usually in January.

Everything else works the same as a one-month option. Same 100 shares per contract. Same Strike price. Same right to buy (a call) or sell (a put). The only thing that changed is the clock.

Sellers meet LEAPS in one place above all others: as the long leg of a Poor man's covered call, where a long-dated call stands in for 100 shares. The wheel strategy uses real shares instead. For the full map of what sits past the wheel, see option strategies beyond the wheel.

What the extra time buys, and what it costs

What you get

Three things, and they are real.

• Room to be wrong about timing. A 30-day call needs the move this month. A 15-month call needs it sometime in the next 15 months.
• Slow decay. Theta is the daily bleed from time passing. Far from expiry it is tiny. The steep part of the decay curve is still many months away.
• A high delta for less cash. Delta in plain words: how much the option moves for each $1 the stock moves. A deep-in-the-money LEAPS with a delta of 0.85 gains about $0.85 when the stock gains $1. It behaves almost like stock, for a fraction of the stock's price.

What you pay for it

• Time value, paid up front. A long expiry is expensive. You pay for every month you might use.
• No dividends. A call holder is not a shareholder. No dividend, no vote.
• Wide bid-ask spreads. Far-dated contracts trade thinly. Use limit orders and expect to give something up on the way in and the way out.
• A floor at zero. This is the big one. Below the strike at expiry, the contract is worth nothing at all.
• Big Vega. A drop in Implied volatility hits a long-dated option harder than a short-dated one, even if the stock never moves.

A worked example (hypothetical)

An illustration, not a trade idea, and this one goes against the buyer.

Made-up company Northwind Freight trades at $50. Buying 100 shares costs $5,000.

Instead you buy one 15-month $40 call for $14.00, so $1,400 for the contract. Delta is about 0.85.

Of that $14.00, $10.00 is Intrinsic value — the stock is $10 above the strike — and $4.00 is time value.

Your break-even at expiry is the strike plus what you paid: $40 + $14 = $54.

What it is worth at expiry

At expiry a call is worth whatever the stock is above the strike, and nothing otherwise.

Look at the $45 row. The stock slipped 10%, from $50 to $45. The call lost $900 of the $1,400 you put up — 64% of it. The shareholder lost $500 and still owns 100 shares.

Now look at the top three rows. Above the strike, the call makes exactly $400 less than the shares in every single row. That $400 is the time value you paid on day one. You never get it back.

And look at the bottom row. Below $36 the shares lose more in dollars than the call can, because the call's loss stops at $1,400. The cheaper entry does cap the damage — at the price of losing every dollar you put in.

Why a LEAPS call is not a cheap share

People say it is like owning the stock for a quarter of the price. Four reasons it is not.

1. Shares have no expiry date. A flat stock costs a shareholder nothing. A flat stock costs a call holder all of its time value.
2. Shares never go to zero because of a date. The call does, every time the stock ends below the strike.
3. No dividend. Shares pay you while you wait. The call does not.
4. You cannot buy 37 of them. One contract is 100 shares. There is no part-size.

Watch the time value melt

Here is the same $40 call with the stock pinned at $50 the whole way. Nothing happens to the business. Approximate values:

Notice the shape. The first six months cost about $2.60 of time value. The last three cost $0.60. Decay is slow early and fast late — the opposite of what most people assume. My guide on theta decay has the full curve.

That is also why a LEAPS buyer who plans to sell short calls against it wants to earn back that $400 of time value before the clock starts running hard.

What to do with this

A LEAPS ties money up for a year or more, in one company. In Canada, buying a long call is usually allowed inside a TFSA or an RRSP, while writing calls and multi-leg spreads need a higher options permission level and may not be allowed in a registered account at all — check your broker's current options agreement first.

1. Open a chain on a stock you follow and go out to the longest expiry listed.
2. Find a call about 20% below the stock price. Write down its price, its intrinsic value, and the difference — that difference is the time value you would be paying.
3. Write down the strike plus the price. That is your break-even, and the stock has to get there before you make a cent.
4. Fill in the expiry table above with your own numbers in the options strategy payoff calculator.
5. If that break-even looks far away, the honest answer is that it is. Shares, or a smaller position, are both reasonable alternatives.

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