Why Buy Call LEAP Options Instead of Stocks

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Sometimes I buy Call LEAP options instead of the actual underlying stocks.  LEAP stands for Long-term Equity Anticipation Security.  They are basically options with longer expiration dates typically 9 months or longer.  A few people have posed the question - why?   So I thought I’d explain why I buy them instead of the stock.

Reasons to buy Call LEAP options instead of the stock:

• You don’t care about dividends
• You expect the company’s stock price to go up, but anticipate shorter term fluctuations in the price.  A shorter term option  could leave you squeezed or stop-loss you out if you get an unfavorable stock move.  It happens.  Trust me on that.
• Lower cash outlay for a Call Leap vs buying the stock.
• Leverage - buying an in-the-money  LEAP could get you the same price movement as the underlying stock.  ie you have a LEAP on a stock that you paid $10 for.  You control 100 shares for $1000 now.  If the underlying stock is trading at $70 and it moves up .70 that is a movement of 1%.  If such a move occurs your LEAP may move upto $.70.  If that is the case you would have made 10% return vs 1%
• Lower risk vs short-term option.  Some of you will fight me on this I’m sure.