Drats, now your returns will always be higher than mine; I paid 178 :-(. When they hit 1000, you'll be at 506% return and I'll only be at 462%.
Well, you'll have to leap ahead of me by buying another leap if Q dips some more, as it probably will.
Concerning the 506% return, that is a return of $83,500 on an investment of $16,500 by buying the leap, compared with a 100% return on a roughly $50,000 investment by buying common. Which is preferable? Duh... Again, I ask, why buy common?
The only reasons I can think are (1) that the leap has to be exercised to realize the profit, which means taxes. Assuming a 40% marginal fed, state, and local rate (our founding fathers must be rolling in their graves), I caluclate the profit to be "only" 263%. Of course, if you actually wanted to use the money from common stock to do something useful, like buy something, you would also have to sell and pay taxes, so it is only a matter of when you want to pay taxes.
The other (arguable) advantage to common over a leap, is that you can margin your common purchases, but as I know you have stated, that is not a good G&K strategy, and can cause loss of sleep when the market hiccups (plus has a tendency to make one sell at the low).
Gee, stop me before I sell all my stocks and buy leaps. I gotta think some more about this whole thing... |
