leap call option strategy

This is a procedure I do everyday with leap call options

Example Ibm is 124.70 today

Its been moving sideways for the last 2 -3 weeks.

The range has been 123-127.

Unfortunately this means using an option you might make 30-50 a contract.

Options only appreciate 30 cents on the dollar.

So if you bought the option 'Wibaf' the IBM ,Jan 2010 expiration, 130 contract for say 1000 a contract ask price.

The bid price would be about 930-950

The bid price is what you could sell that option for

So if the stock moved 4 bucks to 127 the option bid price would appreciate 1.20 based on a 30 cent on the dollar rise.

It should be 1050-1070 probably 1050.

This 30 cent on the dollar return on the options is the typical rise I have seen over the last 20 years of trading. ON options that are long term and close to the money. IE no more then 10-15 bucks out of the money. So if you go out past 140 you decrease your return possibility.

BUYING a shorter term is a loser bet to me.

So now you made 50 bucks a contract profit. So say you spent 5k and bought 5 contracts,you would make 250 gross about 225 net, based on a Charles Schwab round trip of 10-12 bucks a side. He is MY broker so I know the price.

If you spent 12k for 12 contracts which is what 100 shares of the stock approximately costs.

You would make 600 less comission. ie prob 550 net, On the options.

AS opposed to 400 gross made on 100 shares of stock bought at 123 a share and sold at 127 a share.

This kind of trading requires timing and tracking your chosen stock,very closely.

The reason I like Ibm is there are consistant patterns that show 10-15 buck drops an rises.

That gives me the opportunity to make 3 - 5bucks a contract profit.

So 5k invested could pay back 3-5k profit.

And you only tied up less than half the cost of 100 shares of the stock.

Graph the stock back 10 years and you may see these patterns too