Long Term Equity Anticipation Securities (LEAPS) are long term options available on over 1000 equities and 11 indexes. LEAPS provide investors with a longer term view of the market as a whole or on an individual stock. As with traditional short term options, LEAPS are available in two types, calls and puts.
Main LEAPS and Single Stock Futures
A full description of LEAPS and Single Stock Futures as a trend follower, along with frequently asked questions, can be found here.
Why LEAPS Belong in a Trend Following Toolkit
Standard short-dated equity options are incompatible with trend following for one fundamental reason: their expiration periods are shorter than the time horizons that major equity trends require. A trend following position may need to be held for six months to two years to capture the full extent of a significant move. A 90-day call option on a trending stock expires before the trend finishes, forcing a roll at current market prices that increases cost and complexity with each renewal cycle.
LEAPS solve this by providing options with expirations of one to three years. This time horizon aligns with trend following holding requirements. The position can be initiated when the entry signal fires, held through the full extent of the trend, and exited when the exit rule fires, without forced roll-induced decisions along the way. Time decay on a two-year option is spread over a period long enough that the daily erosion is manageable relative to the potential gain from a sustained equity trend.
The calls and puts structure of LEAPS also provides the bidirectional capability that systematic trend following requires. A trending equity market in decline calls for short exposure. Retail and retirement accounts that cannot sell individual stocks short can buy LEAPS puts to capture downside trends. This extends the full range of systematic entry signals, both long and short, into account types that would otherwise be limited to directional long-only equity positions.
The position sizing implications also favor LEAPS. A LEAPS call option purchased at a defined premium has a maximum loss equal to that premium. For a trend follower who sizes positions to risk a defined percentage of account equity on each trade, the LEAPS premium represents the maximum loss regardless of how far the underlying stock moves against the position. This characteristic is structurally similar to the defined maximum loss that commodity futures positions have before the stop fires, making LEAPS compatible with the risk management rules that systematic trend following applies uniformly across all instruments.
Frequently Asked Questions
What distinguishes LEAPS from standard short-dated options?
Their expiration time horizon. Standard listed equity options typically expire in weeks or months. LEAPS expire in one to three years. This longer horizon is compatible with trend following holding periods, which often require six months to two years to capture major equity trends. Standard options expire before the trend finishes, requiring costly roll transactions. LEAPS can be held through the full trend duration.
Can LEAPS be used in retirement accounts for trend following?
Many retirement accounts that restrict short selling of individual stocks allow the purchase of LEAPS puts, which provide equivalent downside exposure. This gives trend followers access to both directional signals, long via calls and short via puts, within account types that would otherwise limit systematic trend following to long-only equity positions. The specific options permitted in any retirement account depend on the account agreement and brokerage policies.
Where can I find a full explanation of LEAPS and Single Stock Futures for trend following?
A complete description with frequently asked questions about both instruments is available at the main LEAPS and Single Stock Futures page on TurtleTrader, which covers the detailed mechanics, time decay management, position sizing application, and comparison between LEAPS and SSFs for systematic equity trading.
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