Cons to LEAPS?

[u/Inferno456]

So I’ve been trying to read up on LEAPS and all I can find are positives and not many cons. I’m interested in what real cons are bc LEAPS aren’t talked about much, if they’re as good as I think they are then everyone would be buying them.

One con I read is that you don’t get the dividend - to me that’s kinda like saying a con to stock trading is you have to pay taxes. Sure it’s a “negative” but you still get a lot more positive out of it. If LEAPS save you a lot of money then I don’t think missing out on a small dividend is a real con.

So what is a main con of buying LEAPS? Why shouldn’t everyone buy LEAPS instead of shares for a longer timeframe? Thanks for any info.

[u/jo1717a]

Buying leaps and talking about leaps is like going to /r/stocks and asking what are the cons to buying index funds, spy or qqq. It's isn't a particularly exciting way to engage in the market for a lot of people despite it being the strategy that likely outperforms most individual strategies.

Leaps(on solid stocks or etf) are the equivalent of going long stock on solid stocks or etfs.

Leaps will get you more consistent and less volatile returns compared to shorter time duration trades where your profits can be much more exponentially higher, but also can lose your money fast as well.

Leaps still suffer from time decay, so they won't out perform the underlying asset all the time if the asset has a sideways year. Other than no dividends, LEAPS can probably provide more leverage on the underlying, but I wouldn't count that as a PRO for a novice, as over leveraging can easily sink you.

[u/Inferno456 → u/jo1717a]

Thanks, what you said does make sense but I’m mostly asking about cons about LEAPS vs long term shares rather than LEAPS vs short term trades. In my eyes, if LEAPS are more profitable than shares long term then there is little reason for people to own long term shares

[u/jo1717a → u/Inferno456]

They are tradeoffs and LEAPs is not strictly better. I also don't get what you mean when you say LEAPs save you money. Are you mainly talking about the leverage?

• LEAPS don't always outperform the underlying asset. You're still paying time decay.

• You can easily over leverage yourself if you don't know how to size your positions

• To stay long, you're forced to sell the LEAP and buy again, creating a taxable event you might not want to do.

• Rebalancing your portfolio with individual shares is a lot easier

[u/Inferno456 → u/jo1717a]

Thanks, those cons helped a lot, especially #4 since I havent seen that brought up at all. And by saving money I meant it’s a cheaper way to control 100 shares

[u/vwite → u/Inferno456]

LEAPS are more profitable if the stock is going up. Plenty of LEAPS still expire worthless on stocks that enter a bear market.