A Query
Let's say I buy 10 contracts of LEAPS calls on stock KING, with a strike price of 100 (ATM at the time of purchase) and a 1/02 expiration. KING goes from 100 to 150, my calls do even better, and I am very happy. I believe that KING will continue to outperform over time, perhaps even reaching, say, 200-250 by 1/02 and 300-400 by 1/03. But I also think it will probably dip back a bit in the near future, because it's risen a little too far too fast. What should I do? As I see it, there are several options:
1. Sell the calls, take the profits (even though I'd pay short-term cap gains), and amass dry powder for another opportunity, perhaps back in KING when it drops.
2. Sit tight and do nothing for a year or more, thus paying lower capital gains taxes and taking advantage of the general upward trend in KING, which will be exaggerated thanks to leverage.
3. Sell some of the calls and use the profits to convert the others into common, thus establishing a durable KING position for the long term.
4. Sell some of the calls while holding the rest, taking a profit but staying in the game.
5. Roll out some of the calls to the same number of contracts at a higher strike or later expiration while selling the rest (a different route toward taking some profit while staying in the game).
6. Roll out all the calls to a higher strike or later expiration, thus increasing leverage.
My questions are these: are these indeed the principal options (i.e., have I left any out or gotten any wrong), and what are their relative merits?
thanks in advance,
tekboy@purelyhypothetical,ofcourse.com |
