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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Jean M. Gauthier who wrote (8765)	10/25/1999 6:07:00 AM
From: John Walliker	Read Replies (1) of 54805

Jean, then when should they be sold or exercised ? On the 3rd Friday of January 2001, or before they become calls ? Anyone ? If the stock has increased massively beyond the strike price the time value and volatility component will become negligibly small in comparison with the intrinsic value. In other words the option price will be only slightly more than the difference between the strike price and the stock price. In this situation it really does not matter whether the LEAPS option is sold before it becomes a normal call. It can be argued that there is no point in exercising before expiry because doing so would tie up cash that could otherwise be used for other things. However, one possibility is to sell the LEAPS and buy a new one with a higher strike price (paying for a bit more time value) as insurance against a catastrophic fall and to release some more cash. That way, if there is some disaster you reduce your losses. However, this does have tax implications that will vary according to your circumstances. John

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