The Price Effect of the Introduction of Leaps.

Previous studies have shown a positive price effect on the underlying security with the introduction of short-term options on an organized exchange. This effect apparently dissipated after the first nine years of the short-term option market because there is a smaller price effect for new options introduced after 1982. A similar positive price effect occurred with the 1990 introduction of long-term options (Long-term Equity Anticipation Securities, or LEAPS), but this effect diminished rapidly in the first nine months of the LEAPS market. The evidence in this research suggests that LEAPS are not redundant assets and offer additional market spanning investment possibilities. Copyright 1997 by MIT Press.