A LEAP (Long-term Equity Anticipation Product) is simply a long-dated option.
LEAP options that don't expire upto 2 years into future give buyer much more time to be right about future direction of a stock and at same time offer tremedous leverage.
LEAP option trading has become quite popular in recent years because just like all options, LEAPs only cost a fraction of what it would cost to buy shares in underlying stock itself, but give you same amount of control.
As with all options though, time is enemy (if you are a buyer) and over time options lose their value.
So how can we use LEAPS to speculate on future direction of a stock (UP or DOWN) and at same time reduce our risk of losing all our money on them?
Well let me share with you a couple of simple LEAP option trading strategies that have worked well for me over years in both bull and bear markets...
If you believe a stock will go UP over next 1-2 years, then buy Call option LEAPs on it and at same time sell call options (at least one or two strike prices out of money) that expire in current month.
If you believe a stock will go DOWN over next 1-2 years, then buy Put option LEAPs on it and at same time sell put options (at least one or two strike prices out of money) that expire in current month.