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there may be options on a certain underlying stock for January, February, March, and so on, all the way up to October. As we move to February, January options expire and a new set of options for November expiration are issued. And the cycle continues as we move from one month to the next.

LEAPS are options with expiration dates of up to one, two, or three years from the current year, with the January of the corresponding years as their expiration months. For example, if we are currently in year 2001, there may be options available for January 2002, 2003, and 2004. The rules for trading LEAPS are exactly the same as other short-term options, but as you can imagine they have much higher time values than the short-term options. For example, if Ford is trading at $50 and it is early January 2000, the January 2002 50 call on Ford (expiring in January 2002) with the symbol WFOAJ may have an $11 premium, much higher than a February 50 call with let's say seven weeks to go, which could have a $2 1/4 premium.

LEAPS are suitable for long-term traders who have shunned options because of their short-term nature. This is not to say that LEAPS should be used as long-term investments. They still expire at some point in time and could lead to losses. However, considering their longer-term nature versus the short-term options, they may be more suitable for those traders who want to get involved with options but still have a long-term strategy. Of course long-term is relative. A value investor whose investing strategy involves buying stocks and holding them for 5, 10, 20, or more years, who likes to derive an income through dividends, or who would like to have very little risk should forgo options (including LEAPS) altogether and invest in stocks.

One exception to that rule is writing LEAPS covered calls, which allow the writer to collect a high premium but would obligate the writer …