LEAPS in Australia 2025: Guide to Long-Term Equity Anticipation Securities

Australian investors are always on the lookout for new ways to diversify and hedge their portfolios, especially as markets evolve in 2025. Long-Term Equity Anticipation Securities (LEAPS) have traditionally been a fixture in US markets, but as ASX-listed options markets mature and global brokers broaden their reach, savvy Aussies are taking a fresh look at these long-dated options. But what are LEAPS, and how might they fit into your investment strategy this year?

What Are LEAPS? The Basics for 2025

LEAPS are simply exchange-traded options with expiration dates up to three years in the future—far longer than the typical one-to-six-month lifespan of standard options. They’re available on stocks and ETFs, offering both call (right to buy) and put (right to sell) varieties. The key appeal is the extended timeline, which can help investors ride out volatility or take a strategic view on a company’s prospects over multiple years.

• Duration: LEAPS typically expire 1–3 years from the purchase date.

• Underlying assets: Most commonly traded on blue-chip stocks and major ETFs.

• Trading venues: While the ASX offers standard options, most LEAPS access for Australians is via international brokers trading US markets.

In 2025, with global brokerage platforms like Interactive Brokers and IG Markets making access easier, Australian self-directed investors are increasingly adding LEAPS to their toolkit.

Why LEAPS Are Gaining Attention in 2025

The appeal of LEAPS is growing as both retail and professional investors look for tools that balance risk and reward over the longer term. Here’s why LEAPS are in the spotlight this year:

• Riding macro trends: With Australia’s economic outlook tied to global forces (think: tech sector recovery, commodity cycles, and the RBA’s rate path), investors want instruments that allow them to express long-term views without tying up as much capital as direct stock purchases.

• Hedging portfolios: LEAPS puts can act as multi-year insurance policies on large equity holdings, especially relevant after the market volatility of 2022–2024.

• Lower upfront cost: Buying a LEAPS call instead of 100 shares of a high-priced stock can require a fraction of the cash, freeing up capital for other investments.

For example, in early 2025, a Sydney investor with a bullish view on Tesla (TSLA) through to 2027 could buy a two-year LEAPS call, gaining exposure to the upside for a known premium. Conversely, a retiree might buy a LEAPS put on the S&P/ASX 200 ETF (ASX:IOZ) as a hedge against a market downturn while remaining invested in shares.

Risks and Realities: What to Watch With LEAPS

LEAPS aren’t a magic bullet, and the longer timeframes bring unique risks:

• Time decay: The value of all options erodes as expiry approaches, and while this effect is slower with LEAPS, it still eats into their price over time—especially if the underlying stock doesn’t move as expected.

• Liquidity: Not every stock or ETF has deep LEAPS markets. Wider bid-ask spreads can mean higher trading costs, and exiting early may be challenging if volume dries up.

• Complexity: LEAPS may seem simple, but layering them into strategies (like covered calls or protective puts) adds complexity. Investors need to understand how options pricing, volatility, and dividends affect value over time.

• Regulatory limits: While Australia’s options market is maturing, direct ASX-listed LEAPS are limited. Most LEAPS exposure requires trading in US markets, which comes with tax and currency considerations. The Australian Taxation Office’s (ATO) 2025 guidance on foreign options trading emphasizes careful record-keeping and understanding of capital gains rules.

It’s also worth noting that in 2025, ASIC is continuing its focus on investor protections in leveraged products, including options. Expect ongoing reviews of how options products are marketed and whether additional suitability checks will be required for retail investors.

Practical Strategies: How Aussies Use LEAPS in 2025

LEAPS can be deployed in a range of strategies, from speculation to risk management. Here’s how Australian investors are using them this year:

• Long-term bullish bets: Instead of buying expensive US tech shares outright, investors use LEAPS calls to gain exposure for less upfront capital, with defined risk (limited to the premium paid).

• Portfolio insurance: Buying LEAPS puts on broad market ETFs to hedge against prolonged downturns—particularly relevant as global uncertainty lingers in 2025.

• Enhancing yield: Selling covered LEAPS calls against long-term shareholdings to generate extra income, though this caps upside potential if the stock rallies strongly.

Example: An investor with a $50,000 holding in the ASX 200 ETF could buy a 2-year LEAPS put, locking in a minimum sale price through to 2027. While this costs a premium, it provides peace of mind in case markets tumble.

Conclusion: Are LEAPS Right for Your Portfolio?

Long-Term Equity Anticipation Securities offer Australian investors a flexible tool for expressing long-term views, hedging, or boosting income. But their risks, complexity, and access hurdles mean they’re best suited for those with a solid grasp of options. As 2025 brings more global trading opportunities and a shifting regulatory landscape, LEAPS could play a valuable—if niche—role in the portfolios of informed investors.