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LEAPS – Overview, How They Work, Benefits & Drawbacks

LEAPS

Future and option trading gives the investors an option to make use of their LEAPS stock market knowledge and predictions to grow their money. If an experienced trader can predict the market movements well, they can earn substantially using these options.

But in most cases, options and futures contracts are made for the short term. There are contracts that are 3,6, and 9 months long but what will you do for a prediction that requires more time than that to come true? 

LEAPS or Long Equity Anticipation Securities could help you here. Let’s understand them in detail through this article. 

What are futures and options trading and how are LEAPS related?

F&O trading gives you an option to earn from your market predictions. In stock markets, you can do the trade in real-time and prices are also reflected accordingly. But on a future or option agreement, you are entering an agreement with someone saying that you will buy/sell a particular stock’s lot at a given price on a future date. Here, the buyer of the contract banks on the stock to reach its desired level while the issuer will be hoping for the price to go the other way.

For instance, if you believe that a particular company’s stock price is going to reach more than Rs. 20 from its current price of Rs. 10 in 30 days, you can enter into an option or futures contract for the same. The contract here will say that you will buy this stock at a particular price, let’s assume Rs. 15 here, 30 days from now. Here, you are hoping that the price would go beyond Rs. 15 while the seller of the agreement is hoping for the price to fall or stay at the same level.

In an options agreement, you are not liable to buy but there is a premium, but in futures, there is an obligation and no premium. 

But these predictions are often for a short time. But through LEAPS, you can extend these options and futures agreements further by two years.

LEAPS

Advantages of LEAPS

LEAPS give you multiple advantages. Primarily, these open up a bigger window of opportunity. With time, your profitability could increase or your prediction could become true. 

For example, if you had purchased an option to buy a particular company’s stock for Rs. 50 and if it passes that price before the expiration of the LEAP, you can hold the option until it reaches its threshold and exercise only when it reaches its maximum potential. Here, it is important to be realistic and have a proper idea about what is the maximum potential as waiting for too long could result in market correction and in turn, a loss.

Disadvantages of LEAPS

LEAPS come with their set of disadvantages as well. To begin with, options are priced higher when compared to traditional ones. This means that you are at risk of losing more money here. Availability is also a drawback as only a select few shares are available for trade through LEAPS.  

Conclusion

Irrespective of whether it’s traditional futures and options or LEAPS, the secret of success lies in research about the stock market and companies. The more you know about them, the better understanding you have and it creates more accurate predictions. Start your research today to earn more via LEAPS.

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Written by
Suza Anjleena

Suza Anjleena is a Blogger, Tech Geek, SEO Expert, and Designer. Loves to buy books online, read and write about Technology, Gadgets, Gaming, LifeStyle, Education, Business, and more category articles that are liked by most of her audience. You can contact me via Email to: Beautyanjleena@gmail.com Thanks

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