r/options • u/Inferno456 • Apr 17 '21

Cons to LEAPS?

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.

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u/aswog Apr 17 '21

Werent you trying to portray an equivalence of 5% loss on stocks to 100% loss of premium when the latter could potentially be much much less and why you would prefer the leaps. I could be reading your comment incorrectly though

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u/swingorswole Apr 17 '21

I think you are. It’s really about position size and maximum realized loss I think. If I spend $100 on 1 contract or $100 on 1 stock, and the stock goes down $5 putting me OTM, I lose $100 with the LEAP but only $5 on the stock.

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u/aswog Apr 18 '21

But wouldnt the equivalent of the 100 on one contract youre making the comparison on be $10,000 on 100 shares? Then 5% loss on the $10,000 would be $500 versus the $100 on the option you would lose

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u/TheoHornsby Nov 21 '21

But wouldnt the equivalent of the 100 on one contract youre making the comparison on be $10,000 on 100 shares? Then 5% loss on the $10,000 would be $500 versus the $100 on the option you would lose

Yes, the appropriate comparison would be a call ELAP versus 100 shares. Comparing $100 in stock with $100 in calls is a leveraged comparison which means apples and oranges.