Jean:
I think you're making this harder for yourself than it needs to be. Most options holders treat their options as entities onto themselves, to be bought and then sold later, hopefully for a profit. Very, very few are exercised for actual shares (except by exchange specialists/arbitraguers, but that's another story entirely).
In any case, your're not wrapping your head around this quite right. To exercise *now* you actually would have to pay:
$ 16,000 for 100 shares at $160 each (your LEAP is a contract to buy Q at exactly $160/share)
- $ 0 for the LEAP (you exercised it, so it goes away - no $101, no $57, *nothing*)
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$ 16,000 Balance you have to pay
So you end up with 100 Q shares having paid $5,700 for the call at some time in the past and $16,000 to exercise it, for a total purchase price of $21,700. Since you could buy those shares on the open market today for $21,500, you're losing money doing that. But if you *sold* the option today, you'd net $10,100 - $5700 = $4400. Tomorrow, who knows?
If you want to hold options to expiration, and then exercise them to buy stock (yes, they will be automatically exercised for you if more than 1/4 point in the money at expiration without you having to do anything), that's a certainly a choice you can make. The *only* advantage in doing that, though, is that you will not have to pay capital gains on your option profit - if your call is exercised, it becomes part of your (now very low) basis in the shares of the company you use it to purchase, and so you won't pay taxes on your total gains until you actually sell those shares sometime in the future.
So...why exercise now and be forced to cough up $160 and give up the $101 your option is actually worth, when the LEAP is very happy just to sit there for some time to come and get more and more valuable with every point that Q rises? (Note for the options cognecenti among you: serious time decay won't even start knocking value off this call until about nine months before expiration, so he has many months left to sit on it with no cost).
There's more, but too much to go into here. Suggest you (a) read the SI thread on "Options for Newbies" and post questions there (I certainly have!), and (b) pick up a good basic options text and start reading ("LEAPS" by Harrison Roth is highly recommended by all).
You're sitting on a gold mine - now you just need to go learn a little geology. Congratulations.
=Rose= |
