Bryan Perry

Avoid This Simple Mistake When Trading LEAPS

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While it's true that there are a lot of special clauses when it comes to trading options, the profits outweigh any of the provocations. High among traders' complaints, though, are the ticker changes for Long-Term Equity Anticipation Securities, or LEAPS.

As a brief review, LEAPS are options that are due for expiration more than a year out. But, LEAPS only expire in January. For instance, options that expire in January 2011 would be considered LEAPS.

Options tickers for LEAPS regularly change. While standard, or shorter-term, options tickers typically stay the same from their creation to expiration, LEAPS' tickers are updated roughly once a quarter.

You see, LEAPS are assigned up to two years prior to their respective expiration dates. So, as time passes, options that were once "long term" eventually become "near term." (To learn more about the particulars of how options tickers are assigned, read "Anatomy of a Stock Option Ticker.")

Ticker changes simply denote the change in status and are necessary because, for any given underlying stock, there are a finite number of LEAP tickers. So, as a LEAPS' expiration date approaches, the ticker is reassigned to an upcoming series. Perhaps the 2009 LEAP symbols get transferred to the 2011 series, and the 2010s live on in the 2012 series, and so on.

So, seasoned traders have come to expect that LEAPS get new tickers as they are converted to regular equity options as their expiration approaches.

When the conversion happens depends on the quarterly cycle assigned to options of the same class, which you can always find out through the Options Clearing Corp. or other options exchanges.

While it can confuse novice traders, the conversion does not affect the LEAPS' contract terms or premiums, and your brokerage should automatically switch the tickers with absolutely no effort required on your part.

Getting Over the LEAP Fog

But, even the most seasoned traders can be thrown by the changing tickers that occur in options land.

A colleague recently came to me with a query. He'd bought some calls in Integrys Energy Group (TEG) … or so he thought.