That gives me close to twice the leverage I had owning the stock.
Not sure if I follow you there. I can understand doubling the leverage in a non-taxable account, but if it is in a taxable account, and say you pay 40% short-term tax, then most of the leverage goes away.
For example, selling 100 shares at $450 grosses $45,000, but only $27000 after tax. 60% of that is $16200, enough for one leap with about $4k left over. So now you have one leap and about $15k left, enough for 40-some shares if it corrects to 350. If Q goes back to 450, you make $4k on those 40 shares, but are still down $12k on the leap. Once Q gets to $570 you are even on the leap, and are now playing with 140 shares, worth $67800 after subtracting the cost of the leap. If you had just kept the 100 shares, they would be worth $57000, so the difference is $10800, not insignificant but far from doubling your leverage, plus if the stock does not correct that much, the difference is even less.
Maybe I'm missing something, or maybe my numbers are wrong, it's getting late, but this is what I come up with. |
