How LEAPS options create leverage...

LEAPS Create Leverage

Leverage can allow for substantial returns as a trend follower. Leverage allow traders to use a small amount of capital to control a larger sum.

An S&P 500 futures contract may require $20,000 in margin per contract. Each contract controls $283,750 worth of the S&P 500 cash index. Each contract is leveraged at 14 to 1. Each dollar you put up controls $14. Gains and losses are calculated on the larger amount. This can produce substantial returns.

LEAPS allow traders to profit from movement in the underlying stock. If you purchase a LEAP call and the market rises, your LEAP should increase in value.

Market Examples
Issue	Cost of 100 shares	Cost of LEAP	Leverage Created
Coca Cola (NYSE: KO)	$5,169	$420	12.3
IBM (NYSE: IBM)	$9,941	$1,160	8.56
Boeing (NYSE: BA)	$4,949	$850	5.82
UAL Corp (NYSE: UAL)	$1,463	$660	2.21
Merck (NYSE: MRK)	$5,704	$680	8.39