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. With that in mind it is entirely possible to create a conservative, growth-and-income portfolio.

Advantages of LEAPs

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 months you get with standard options.

But regardless how expensive a LEAP might be, you are still paying less than you would if you buy 100 shares of the stock. And you can use this purchase savings to collect interest income that at times can be many times greater than the dividend income you would receive from owning the stock itself.

The purest investment play with a LEAP is to buy one with the most intrinsic, or real value. Time value is for speculators, not investors.

When you buy an in-the-money LEAP, you will pay less for time value, and the LEAP is closer to moving almost point for point with the stock price, making it a purer "surrogate stock." (Avoid this simple mistake when trading LEAPs.)

How to Supercharge Your LEAP Returns

When you buy a LEAP you are not eligible to receive dividends from the underlying stock. But you can use a LEAP to earn income, by putting the money you save by buying a LEAP instead of the stock into a money market or short-term bond fund and collecting the interest. This also gives you additional downside protection should the stock head south.

Also, when you use a LEAP as a surrogate stock investment you can also use option strategies similar to those you would use with stocks. One of those strategies is writing covered calls.

Next: More on Writing Covered Call