Sam:

In his outstanding book "You Can Be a Stockmarket Genius" Joel Greenblatt recommends buying LEAPs (long term options of up to three years). His strategy is to find solid companies that are temporarily beaten down for whatever reason, by LEAPs, then wait for the stock to go back up. By doing this, even a relatively small gain in the stock can result in a much larger percentage increase in the option price.

For example, back in February I bought Jan. 2007 calls on JNJ for $3.40 per share, or $340 per contract, with a strike price of $60. JNJ is now selling at appx. $61.50, and the options are now going for around $4.60, or a gain of 35% even though the stock has only gone up about 2.5%.

As another poster mentioned, the key is buying relatively long-term options. Since January, JNJ has bounced around from $62 to $57 and back. Because I bought Jan 07 LEAPs, I could ride out the volatility with no risk of my options expiring worthless.

Greenblatt's strategy is a relatively low risk one. You buy options on solid companies and then wait paitently for the stock to go back up. It's classic value investing, but with a twist.

Paul