When most people think of options they think of risk and speculation. If you trade in and out of short-term options that is an accurate assessment.

But with a long-term LEAP call option, which can last for up to two and a half years before expiring, you are investing, not trading.

The biggest advantage of a LEAP is its low cost compared to the cost of the stock. When you are investing in a LEAP, that is how you should think -- its cost relative to the cost of the stock, not relative to the cost of short-term options.

With a LEAP you have a much longer time for a stock to make its move -- years, versus the weeks or maybe months you get with short-term options.

And a lot can happen in a couple of years. The market can go from bullish to bearish and back to bullish again. Or a company can go through a complete product cycle or restructuring and still have time for the new results to make an impact on its stock price before your LEAP expires.

In fact, if you have never owned a LEAP, you should consider spending a couple hundred dollars to buy one, even if it has little chance of profit. Hold this LEAP until expiration. The experience you gain will be eye-opening. You will see first hand exactly how much happens over two and a half years to a stock and to the market in general.

Regardless of what your LEAP costs, you are still paying less than you would if you buy 100 shares of the stock. Plus, your risk is lower and your profit potential is higher.

For example, in April 2003 in we recommended the Monsanto (MON) Jan 17.5 LEAP Call. The stock was at 15.8, and the LEAP cost 1.5 points ($150). By buying the LEAP, you would control 100 shares of Monsanto stock for $150. If you chose to buy 100 shares of the stock itself it would have cost you $1,580.

When you buy a LEAP you will want to know the breakeven stock price, which is the LEAP’s strike price plus its cost. This is the price the stock must reach to cover the “time value” you are paying for when you buy the LEAP.

For our Monsanto LEAP, the breakeven price was 19 (17.5 strike price plus 1.5 LEAP cost), about a 9% rise in the stock. That was the price Monsanto had to reach prior to January 2005 to guarantee that the position at least broke even.

If MON traded between 17.5 and 19 prior to expiration, you would have a loss with the LEAP and not with the stock. But after reaching breakeven, the math starts to work much better for LEAP owners.

If MON was 20 when the LEAP expired you would have a 14% gain on your stock purchase. With the LEAP you would have a 66% gain, with a much smaller investment outlay. Looked at in this sense, buying a LEAP is actually less risky than buying the stock.

If a stock falls in price, you will also lose money whether you own the stock or the LEAP. But your total risk with the stock was the $1,580 it cost to buy the 100 shares. With the LEAP, your total risk was the $150 it cost to buy the LEAP.

A way to guard against a stock decline is to use a “mental stop” on the underlying stock. If the stock price falls 10% (or whatever your choose as a stop loss), sell the LEAP, the same as you would with a stock.

As it turned out, Monsanto stock rose and subscribers eventually closed out a 140% profit with the LEAP.

So, LEAPs are a good way to take longer-term positions is a stock without having to buy the stock itself. Your risk is lower, and your potential profit is higher. Whether you are a new or experienced options trader, you should always include LEAPs as part of your overall trading strategy.