<<Neal, for the benefit of thread members who are learning about options, would you be willing to post the breakdown that led you to see that there's only about $4.00 of time premium left on these LEAPS for the year, and what that means?>>
Poet: I really did a very simple mathematical equation. The bid on the 2001 $62.50 is 117 3/8 (as of the close on Friday). If you add 117 3/8 to 62.50, you get $179.875. The closing price on Friday for the common stock was $176 1/8. Thus, the premium is $3.75 ($179.875 minus $176.125). Stating the obvious, this means the leap will be profitable if QCOM goes up more than $3.75 in the next year. An added bonus is that the options are so DIM that we are getting virtually a point-for-point move with the stock. SO...let's say QCOM common goes up 30% next year. The stock will have gone from $176 1/8 to $228.96, a gain of almost 53 points. The leap (which will have no time premium left this time next year) will have gone from $117 3/8 to $166.46, which is a $49 gain and a 42% gain. Thus, with the leap, you are getting additional leverage (here, an additional 40% leverage--the difference between 42% and 30%).
Obviously each investor has to make his/her own assumptions. If you think the QCOM common will be lower this time next year, then you will not want to have the risk of leaps. If you think QCOM common will go up another 2000% this year, then you can make a far more profitable trade than buying the DIM leaps.
Good luck all. |
