LEAPS - long-term equity anticipation securities - are options with more than nine months to expiry. They are the most capital-efficient way to express a long-term directional view, and they are systematically underused by retail traders who default to buying stock.
The basic structure
Instead of buying 100 shares of a stock at $200 ($20,000 in capital), buy a 70-delta LEAPS call at $40 ($4,000 in capital). You participate in 70% of the upside per dollar move, with 80% less capital outlay. The remaining $16,000 sits in T-bills earning whatever the short rate is.
The 70/30 split
A 70-delta LEAPS captures roughly 70% of the upside and 70% of the downside. The other 30% is intrinsic-to-strike distance and the premium paid for time and volatility. Treat the LEAPS as 70% of being long the stock - sizing should reflect that.
Where the math wins
- Capital efficiency: 80% less tied up in the position.
- Capped downside: max loss is the premium paid. Stock cannot go to zero on you without you knowing the loss in advance.
- Leverage without margin: no borrow cost, no margin call risk.
Where the math loses
- Dividends: you do not collect them.
- Time decay: small but real on long-dated options.
- IV crush: if implied vol collapses, your LEAPS loses value even if the stock is flat.
The honest framing
LEAPS work best on stocks you would buy anyway, expressed for capital efficiency. They fail on lottery-ticket bets where you needed the unlimited upside. Pick the strike carefully - 0.70 delta is the sweet spot. Lower delta means you are paying too much for the long-vol exposure. Higher delta means you are wasting the capital efficiency.