>> the differnce between "Leaps" and other options
Actually, none, except Leaps are initially much longer term. Leaps are 1- and 2- year options when first listed but in the course of time become 'regular' options. This Monday, all 2000 Leaps will become regular January options and 2002 (!) Leaps will be listed. Leaps stands for something like "Long-term Equity Appreciation Securities" and is copyrighted by the CBOE.
One of the difficulties in calling Leaps markets is the capital treatment they attract. If I buy 100 Leaps for $5, assuming they are out-of-the-money, I am charged 100% margin, or $50,000 for the position. If they were warrants, they would be 50% marginable, so only a $25,000 capital charge, despite the fact that there cannot be a short squeeze on Leaps as often occurs with warrants and rights. (In point of fact, all options are margined this way, but the high time premium associated with Leaps makes the problem much worse from a ROI standpoint).
I hope everyone is cleaning up in this market. Big volumes, big swings in the underlyings, high volatilities...these are the salad days for options traders. No matter what the textbooks tell you, options are meant to be bought, not sold.
Happy trading.
Porter
(Living the vida loca) |
