re: am I missing anything?
Here's how I do it:
First, it has to be a stock that I'm sure will at least double over the life of the option. That means a quality company at a good value, and a option with at least 2 years to run.
Second, I make a spreadsheet, showing the % return, at various strike prices and various possible stock prices when I sell. Then I stare at that spreadsheet for a long time, trying to find the best risk/reward ratio. I usually end up buying strike prices 50-100% above the current stock price. I've taken large positions in LEAP calls, 4 times in the last 2 years. I've sold 2 of them for spectacular gains (AMAT and INTC), still holding the other two (SAP since 3/99, BSX still buying).
If my evaluation of the company or the stock is wrong, I can lose everything I invest in LEAPs. So, I have to be very sure, and think everything through from all angles. "Gut feeling" is not adequate. |
