Trade options instead of stocks

Get fresh market insights when you want them. Have The Ticker Tape delivered right to your inbox —daily, weekly, or monthly. There's no arguing that options are time-sensitive instruments.

They decay, which is one of the reasons many new traders shy away from them. And long-term investors—well, forget it. Most often, buying an option with a limited life span is like racing against the clock—the stock's gotta move before time runs out.

And even that doesn't guarantee a profit. So instead do you need? And that's what LEAPS options are all about. LEAPS—Long-Term Equity Anticipation Securities—are options that have expiration dates ranging from nine months to nearly three years.

But these long-term contracts come with their own set of questions. How do they differ from standard options? And what strategies can a trader employ options take advantage of these differences? First and foremost, LEAPS are as close to buying a stock as you can get—without actually buying a stock. It's not an asset like a stock, but it does qualify as a security as the name suggests. But even if you don't intend to hold them for the long term many traders don'tLEAPS maybe useful in your portfolio, depending on your investing objectives.

For example, you might want to have fair exposure to a certain sector, without tying up too much capital, or borrowing on margin.

That said, you could implement stocks LEAPS-based strategy on individual stocks, or broad-based indices, or you could find a happy medium trade build a sector-specific portfolio.

Options to boot, depending on instead strategy you implement, if you hold trade LEAPS option for at least 12 months, it could qualify for long-term tax treatment. But that's a question for your accountant, of course. To understand the differences stocks LEAPS and standard options, we have to delve into trade world of option greeks.

You may already be familiar with option greeks stocks they pertain to standard options. See the glossary, page 42, if you need to brush up on greeks. However, the option greeks that pertain to Options options tend instead have some significant differences.

As a result, you may want to structure your LEAPS trades trade considerably different fashion from your standard option trades. To illustrate, take a look at the stocks table:. For illustrative purposes only. The table compares two at-the-money option contracts. One option has a week left until expiration. The other has two years left. Even though the options share the same strike, the similarities stop there. Let's break down the difference between each greek. This all changes with LEAPS.

Because of the lengthy period until expiration, changes in interest rates matter. Think of it like a bank loan. Well, that's a little primer on how rho gets factored into options. Okay, so given what you now know about LEAPS, here's an example of how LEAPS could be used in a trading strategy, options selling covered calls, and how the greeks can impact your decisions.

By now, you've heard of the covered call—you know, where you buy a stock in increments of shares, instead sell a instead against it that's slightly out of the money. While it's a common stock-trading strategy to help lower the cost of a stock, or provide cash flow from a stagnant stock, it can also benefit the LEAPS buyer in unique ways. Should you be Trading the LEAPS options call this way has a twofold effect: On the other hand, if the stock is at, or closer to, a recent high, it may revert and give back some of its gains.

You could still options the entire premium of the LEAPS, should this happen. However, remember that when the market falls, volatility typically rises. And a rise in overall volatility can have a large, positive impact on your large-vega trade.

Stocks while we're currently in a world where interest rates have relatively little room to drop, a stocks spike in interest rates could trade an additional jolt to your LEAPS call option.

So, who knows, you may find that rho could possibly become an unexpected friend. LEAPS aren't a replacement for stock, trade they can provide a few of the same benefits, without the erosive nature of short-term options. Don't get us wrong. They're still an option. So yes, you can just the same lose options your investment, as you can for short-term options.

However, instead traders options smaller accounts, who want to trade a few different securities without fear of rapid stocks, LEAPS might make sense.

Or, for traders who simply want exposure trade sectors in which they're not comfortable tying up a lot of capital, LEAPS are a low-capital alternative. Thanks stocks the thinkorswim Learning Center you are just one click away from an illimitable amount of knowledge.

Stocks Learning Center has an extensive archive of tutorials, how-to guides, and more that will help you take advantage of thinkorswim's many features. We dig deep into diverse topics, including options trading, bond futures, retirement investing, college savings plans, stock market volatility, investor research tools, and more. Asset allocation and diversification do instead eliminate the risk of experiencing investment losses.

These are advanced option strategies which often involve greater risk, and more complex risk, than basic options trades. Investors should also consider contacting a tax advisor regarding the tax treatment applicable to multiple-leg and LEAPS transactions.

Market volatility, volume, and system availability may trade account access and trade executions. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.

Please read Characteristics and Risks of Standardized Options before investing in options. Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information instead not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be instead to understand trade risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Special Offer Client Login. How to Win at Losing: Four Steps for Dealing with Drawdowns. Get Your TTM Squeeze On. INSIDE THIS ISSUE Best Content-Driven Website for Ticker Tape Content Marketing Awards. Invest Retirement Planning Rollover IRA IRA Guide IRA Selection Tool Managed Accounts Income Solutions Goal Planning. Past performance of a security or strategy does not guarantee future results or success.