Perhaps the most direct way of investing long term in stock options is through buying LEAPs call options. LEAPs call options are stock options that expires 6 months to a year in the future. This kind of long expiration stock options allows anyone to benefit from the same move in the underlying stock in a leveraged manner, using lesser money than stock traders do.
However, the one mistake that most option traders make when investing long term in call stock options is that one magic word that all investors love : Compounding. Compounding ones profits means to keep reinvesting ones profits so that the profits also make profits of its own. This is a concept that has made multi millionaires out of stock traders, but this is a concept that kills option traders. When an option trader compounds profits when option trading, he also end up compounding the eventual, inevitable loss and end up with nothing due to the leveraged nature of stock options.
Here is an illustration :
Assuming XYZ Companys stock is trading at $10 on 1 Jan 2007 and its $10 strike price LEAPs call option (Jan10call) expiring on Jan 2008 costs $2.
John invests his entire saving of $1000...
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