Long- term options strategy

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The Bottom Line There are literally scores of option strategies. Straddles, strangles, and butterflies are just some of the main types of strategies where an investor can use options or sets of options to bet on any number of stock and market movements.

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Most of these are beyond the scope of this lesson, so we will just focus on two strategies most often used by value investors. First, leaps are options with relatively long time horizons, typically lasting for a year or two.

The term "leaps" is an acronym for "long-term equity anticipation securities.

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As we see above, leaps can offer investors better returns. However, this bigger bang for the buck does not come without some additional risks.

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Also, the long- term options strategy investor doesn't get to collect dividends, unlike the stock investor. This latest example highlights perhaps the reason why options are a tough nut to crack for most investors. To be successful with options, you not only have to be correct about the direction of a stock's movement, you also have to be correct about the timing and magnitude of that movement. Deciding whether or not a company's stock is undervalued is difficult enough, and betting on when "Mr.

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Market" is going to be in one mood or the other adds great complexity.