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Finance: What are LEAPs? 1 Views
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Description:
LEAPs are long-dated options. No, not options that are dropping hints about marriage - put or call options with lengthy durations.
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- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
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Transcript
- 00:00
Finance a la shmoop what are LEAPs of options? not of faith although a
- 00:08
commitment to the latter sometimes helps all right [Woman jumping over canyon]
- 00:11
LEAPs think long-dated options that is put or call options that go on and on
- 00:18
and on for a very long time like ten months or two years or more well why the
- 00:23
difference of a LEAP versus a normal put or call well most normal puts and calls
Full Transcript
- 00:29
are priced at most about six months out banks like to be liquid and should
- 00:35
the market swing violently even if they lose while they want to know how much [Market riding a swing]
- 00:40
they've lost within a very short period of time so LEAPs take on a different
- 00:45
life with vastly different durations or time or theta if you want to get all
- 00:51
Latin.. you can imagine yourself as an investor in a hundred times revenue [Woman sitting at her desk]
- 00:55
superfast growth internet something whiz-bang company dot-com you've made
- 01:00
200 million dollars in your investment more dough than you ever dreamed you'd
- 01:05
need and definitely worth a pile of cash selfie so all you care about now is [Person looks at selfie with cash]
- 01:10
locking in your gains but also not being stupid in case this really is the next
- 01:15
Google so you want to lock in your gains there and you know what they say about
- 01:18
Wall Street people investing hogs eat well but you know pigs get slaughtered
- 01:23
something like that so you would really like to sell your stock but you're
- 01:27
waiting to move from a blue state to a red state and save one-sixth of your
- 01:32
gains so you want to wait to sell but you're nervous in the interim two years [Woman biting her nails]
- 01:36
that your shares in you know facepage will plummet from two hundred fifty
- 01:41
bucks a share to 20 and well then you have to go back to work this is where
- 01:45
LEAPs come in they're kind of life insurance for wealth you want to buy a
- 01:49
two-year LEAP that protects you from huge downside and you do the math at
- 01:53
$100 a share well you still don't need to go to work ever again you'd have like
- 01:58
a hundred million instead of two hundred million, you may only be able to afford a
- 02:02
Winnebago but well you'll survive without relying on raman [Woman eating on a park bench]
- 02:05
noodles for sustenance so what do you do well you get a quote from an investment
- 02:10
bank who trades in your stock and learn that for $10 a share you can lock in
- 02:15
your $100 a share price for two years meaning you're paying 10 bucks betting
- 02:20
that that stock won't go from $200 in change all the way down to below $100 in
- 02:26
two years and the bank is betting that it will remain above $90 at which point
- 02:31
well you know they'd make profit right so from your end
- 02:35
if the stock went cataclysmically awful like the seven dollars and twelve cents [Stock prices drops to 7 dollars per share]
- 02:39
a share because there was fraud and murder and deceit and all kinds of bad
- 02:43
things well you'd still net $90 a share because you're paying that $10 a share
- 02:48
today and the bank even if the stock was seven dollars and twelve cents two years
- 02:53
from now they'd pay you $90 a share for your business yeah and that'll just have
- 02:58
to do and besides not having to work well it leaves you plenty more time to
- 03:01
take selfies albeit with smaller piles of cash [Woman takes selfie and small pile of cash appears on sofa]
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