A call option with an exercise price initially set deep in-the-money. Since it is highly likely that the option will be exercised due to its deep in-the-money status, and that it replicates the value and performance of that of the underlying equity, a low-exercise price option (LEPO for short) can allow participation in the performance of underlying price in case the direct holding of a particular underlying is not possible due to financial or legal obstacles. As such, premiums on this option are duly large.

Buying a LEPO on a share of stock gives the holder the right to buy a specific number of shares (1,000 shares per contract) at a certain future date. LEPOs, particularly those settled in cash, allow investors to bank on movements in the underlying to the same extent as with buying the underlying (i.e., on one-for-one basis). However, holders of LEPOs neither receive dividends nor have voting rights with regard to the equity underlying the shares. Buying (selling) a LEPO is analogous to a forward purchase (sale) of underlying.

Of the interesting features of a LEPO is that both the buyer and the seller are subject to margin requirements. Both parties pay or receive margins as long as the option has not expired or has not been closed out or exercised.