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Biotech / Medical : Ligand (LGND) Breakout!
LGND 199.13-0.6%12:45 PM EST
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To: Skeeter Bug who wrote (3574)6/17/1997 3:12:00 PM
From: Andrew H   of 32384
 
Skeeter- Here is how I understand what Josh is saying. When the stock goes from 13.50 to 10.00, the option holders would lose $3.50 (if they were lucky enough to get the option at only a .50 premium which I doubt). But then they immediately buy another option, say the 7.50 call and if the stock goes back to 13, they make all their money back (minus commissions and premiums). Meanwhile, those who have held the stock are also just where they started. If the stock goes to 15, the option holders make a huge return on their 3 dollar or 3.50 investment.

As Josh says, you have the extra commissions. Also you have pretty good spreads, and no tax deferment. But in reality, he may be right that the risk is not that much greater. And if the stock goes up a lot, you have leveraged your cash to a much greater extent. Still, it seems like a lot of extra trouble and worry to me. And if you didn't have the money to roll over into another option, then it WOULD be a complete loss.
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