re: QCOM 2003 100s:
bid-ask is 18.5-19.125
stock is at 56.6
option has 30 months till expiration
Let's assume:
I hold till just before expiration,
and the stock triples in that time.
So:
Holding the stock gives me 3 times my original money.
Holding the option: Since the option is far in-the-money by 2002-2003, it will have lost all its time premium by 6 months before expiration. I would have to sell the option a year before expiration, or when it is not far-in-the-money, to get any time premium back. (56.6 X 3)- 100 = 69.8, which is what the option will be worth in January 2003. 69.8/19.125=3.6 So, I make 3 times my money if I hold the stock, and 3.6 times my money if I hold the option.
If you do these numbers with lower strike prices (= less risky options), then the stock return is greater, even if the stock triples. You have to assume the stock quadruples, or better, before the options start to do much better than the stock. I'm not willing to assume that.
Conclusion: the options are so expensive, they don't give enough leverage to compensate for the increased risk.
I haven't made up my mind on this, but that's where my thinking is at the moment. |
