What are LEAPS?
A long term equity anticipation security, aka. LEAPS, is a fancy term for a long dated option with expiration of at least 9 months in the future. LEAPS are currently offered on about 450 equities (including equity indexes such as the Dow Jones - DJX and the S&P500 - SPY) and can be traded with calls and puts just as normal equity options.
How to Use LEAPS?
LEAPS are great for longer term investors as it allows them to take advantage of longer-term price moves in a stock without the need to dedicate large amounts of capital for long periods of time. However, the slow time decay, or low theta, can provide frustration to the writer of the option as the option will lose value slower than shorter dated options.
LEAPS are intended for the long haul; they are not easy to trade in and out of for the simple reason that the LEAP option delta is not very high due to the long term nature of the option. Basically, do not expect the option to increase as fast in percentage terms as a shorter dated option.
LEAPS can also be seen as part of larger options strategies such as the collar option strategy in which they allow you to create lower risk traders for the longer term.