The Advantage of LEAP Calls in a Bull Market

LEAPs (Long-Term Equity Anticipation Securities) are simply long-dated call (or put) options—generally with an expiration of a year or more.

In a strong bull market, stocks often jump significantly from one day’s closing price to the next morning’s opening price—a phenomenon known as “overnight gap ups.” Day traders who close out positions each afternoon risk missing these after-hours gains. By contrast, owning long-term call options, or LEAPs, allows you to stay continuously invested and capture those overnight moves. These overnight price surges can compound quickly over the span of several months, contributing a substantial percentage of the market’s overall gains.

Capturing Gains in Overnight Sessions

There is strong evidence (both academic and from practitioner research) that a large share of the stock market’s gains often happens overnight, reflected primarily in the gap between the prior close and the next open. Studies commonly show that these overnight returns can account for anywhere between 50% and 70% of the total long-run return, depending on the exact index and time horizon examined.

If one’s main goal is to capture those overnight moves, then maintaining continuous exposure—whether via shares, futures, or longer-term options—can be more effective than strictly day-trading strategies that are flat overnight.

Overnight Effect

While the “overnight effect” was famously stark in the 1993–2013 window, subsequent research confirms the effect has persisted—though its magnitude can vary:

1. Bespoke Investment Group and others have periodically updated the charts showing the performance of “buy the close, sell the open” vs. “buy the open, sell the close.” In many updates, the overnight strategy still accounts for a large percentage of long-term gains.
2. Academic papers (e.g., Berkman, Koch, Tuttle, and Zhang, 2015) refer to this as the “overnight return puzzle” and explore reasons behind it. They consistently find that average returns from the close to the next open are statistically higher than intraday returns.
3. Recent performance (late 2010s – early 2020s) suggests that while the effect may not always be as dramatic as it was in the earlier SPY analysis, a considerable fraction—often cited anywhere from 40% to 70%—of total equity market gains still occur in overnight gaps over long horizons. The exact figure can fluctuate depending on the specific index, time window, and macro market conditions.

Less Monitoring

Another big advantage of LEAP calls—those expiring in 6 to 12 months—is that they require less hands-on monitoring and effort than daily in-and-out trading. Day traders often need to watch the market closely, constantly adjusting positions to react to minute-by-minute fluctuations. LEAPs, on the other hand, let you establish a position in a bullish stock or index, then ride the broader trend upward as the bull market carries prices higher. By holding steady, you’re automatically exposed to any favorable market gaps that occur after hours.

Of course, day trading strategies can certainly be profitable too, especially for those willing to commit significant time and attention each day. However, the simplicity of LEAPs—along with their built-in, around-the-clock exposure—makes them an appealing alternative for many traders. In a market that keeps gapping higher at the open, simply holding LEAP calls can be a relatively effortless way to participate in—and potentially outperform—short-term trading approaches.