Uncle Frank, that is a spectacular explanation ... Wow...
I am very, very impressed....
Point 1:
You Said: You state that you bought the leaps contract for $5700. That works out to 57/share. If you exercised now, you could buy the stock for 160/share, but you would forfeit your premium, so your cost basis would be 217/share. That's $1.25/sh. more than you could buy the stock for on the open market, so overall, you would lose $125.
--> A bit confused here, as the LEAP is worth 101 / 102 $ by itself... Hmmmm..
If I exercised now, would I pay:
$ 21,500 for 100 Shares (as of today's price approximately)
- $ 10,100 for the LEAP (as of today)
(of which I paid $ 5700 already)
===========
$ 11,400 Balance I have to pay ....
Point 2: You said: . At expiry, every contract that is 1/4 of a point or more in the money is exercised automatically.
I have tons of LEAPS in my account(s), for SUN, QCOM, MSFT, DELL, EMC & Cisco. Are you telling me that I need to do NOTHING if they are in the money, at EXPIRY ? That they automatically exercise on the 3rd friday of January 2001 & 2002 ?
If that is true, I will end up with a ton of stock, and (a ton of margin too) <g>
Point 3: Interesting observation about that $ 217/share the SELLER of the LEAP made. So he has his money tied up for another 2 years (or so), getting $ 160 / share later, but $ $ 57/share immediately for investment somewhere else ?
is that right ?
So he'll make $ 5700 / $ 16,000 or 36 % Return for 2 years. Is that right ?
Point 4: To confuse the issue even more, I bought the LEAP slightly out-of-the-money, when the common was trading at
$ 153 or so. Does that change anything ?
Thanks a lot for the kind comment on my good fortune, but I ONLY have 100 shares for the future, not like the high rollers in this group <g>
Take care of yourself
Jean |
