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Strategies & Market Trends : Canadian Options
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To: Porter Davis who wrote (1539)6/12/2000 12:03:00 PM
From: Goldberry  Read Replies (1) of 1598
 
Hope you are settling in well in Montreal.

I hope you can give me some insight into leaps and the market maker pricing. With regards to the CIBC $25 02's. Stock is trading at $44.40 asked is $20.30, Stock is at $44.30 asked moves to $20.20. Time premium is being kept at 90 cents. This boggles my mind. Time left is about 20 months cost of borrowing the $25.00 to cover the position is at prime rate less dividend yield (7.5-3.0) about $1.65. Based on this I would have thought that the leap should trade at a minimum of the cost plus some additional premium. It would seem this provides the big spenders a guaranteed way to make money. Buy the leap, short the stock and sell the short term calls.

Can you enlighten me?
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