LEAPS Advantages

LEAPS are a powerful tool for trend followers. They provide an enhanced risk/reward picture, and allow for a significant capital savings. LEAPS can also open up more markets than can be trading in a retirement vehicle.

Advantage #1 - LEAPS can allow for diversification. Since LEAPS can be cheaper than purchasing the stock outright, they allow more markets to be traded.

Advantage #2 - LEAPS can create leverage. LEAPS cost a fraction of the cost of the underlying stock. Movements in the stock are reflected in the gain of the option. A stock moving from $5.00 to $10.00 will show a 100% gain. A LEAP on this issue may move from 1.00 to 5.00, a 400% gain.

Advantage #3 - Time decay is minimal. LEAPS by nature have an enormous amount of time before expiration. All options decay over time. In fact, rapid time decay is typically not seen until the last 9 months of an option. At 9 months before expiration LEAPS become traditional options.

Advantage #4 - Use of retirement money. LEAPS allow traders to trade a trend following method in a retirement tax shelter. LEAPS allow for both sides of the trend to be traded, increasing the number of trends that can be traded, and potential returns.