Having never exercised an option before...let me work through some numbers here...
I own some 2001 $40 LEAPs. For discussion sake, let's say I have 10.
On January 1 they were worth about $137. The stock was at 176. EVEN.
To buy 1000 shares of Q via exercising, it would cost me $40 x 1000 or $40,000.
OK, so I want to exercise them. I don't have any money to do so...therefore I must sell a few.
Hmmm...so I sell 3 of the LEAPs and get $41,000
The remaining 7 LEAPs I exercise...costing me $28,000.
So now I have $13,000 left over and 700 shares of Q.
What do I do with the $13,000?
buy more Q?...that would get me 73 shares.
TOTAL is now 773 shares of Q...
WHEN I USED TO HAVE 1000...
Now unless you need the $13,000 to buy Rick a present or a night's worth of tequila, it would be silly to exercise your options IF the stock remains flat line until expiration or goes up. IF the stock goes down or crashes, then of course you shoulda, woulda, coulda...
I hope this makes sense. You basically are reducing your leverage...unless of course you could buy more LEAPs with that $13,000...but I don't think you could with that amount of money to make up for what you are losing.
Love
Rick Option |
