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Pastimes : Play It On Paper- Clappy's Newbie Option Thread
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To: okelly who wrote (92)7/29/2000 1:14:19 PM
From: hlsjones   of 176
 
okelly
I use the delta between the cost of just buying the stock and the sum of the strike price and the cost of the LEAP as the cost to own the LEAP. This is a fare way to value the play only if the LEAPS are very deep in the money and would take a world event to reduce you to a loss position on the leaps - stock price falling below the strike.
That said if it costs me 25 cents a month to hold the LEAPS and I sell calls for 75 a month my gain is really 50 cents on a cost of 25 cents. Great return on investment. I look at it this way because, with deep in the money LEAPS, my original dollar amount is always returned when I sell the LEAPS. The only money "at risk" is the delta (premium) that I paid up front on the LEAPS.
In the right stocks, that entire delta is returned in one or two months of selling calls. Then it's all gravy.

This is just one of my indicators to find candidates not the only criteria, but if it fails this one it's a non-starter.

Harry
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