LEAPS (Long-Term Equity Anticipation Securities) are publicly traded, long-term options to buy or to sell an underlying publicly traded equity.
A LEAPS put option (option to sell) allows the holder to protect the purchase value of his investment for a period of 14 to 26 months into the future at a known cost.
LEAPS are American-style options that may be exercised at any time prior to the expiration date. For example, LEAPS issued in September, October or November 2010 expire in mid-January of either 2012 or 2013.
The cost of the option is a proxy for much of the lack of marketability discount of a closely-held stock, because it eliminates the risk of loss in value over time. A discount percentage (or cost of price protection) is calculated as the cost of the put option divided by the cost of a share of the stock. |