Formerly About Applied Materials Message Board

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Politics : Formerly About Applied Materials

AMAT 249.89

+3.1%

Nov 26 3:59 PM EST

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To: Proud_Infidel who wrote (37960)	10/7/2000 8:33:02 PM
From: Ian@SI	Read Replies (2) of 70976

Brian, I'm not an expert in Leaps but before trying the strategy, one should find out whether the contracts are American Style or European Style. My guess would be the former which means that the seller of the PUTs could take an early assignment at any point in time. As I suspect that those leaps would be almost totally illiquid, early assignment is a very real possibility especially should the holder of the contract fear or foresee a rise in the price of the underlying. While the premium is the seller's to keep, the interest may never be realized; and selling 10 Contracts of Jan 2003 130s may result in 1000 shares being exchanged for $130K without any notice whatsoever. And if AMAT reaches the previous cycle low, the PUT seller may only realize $20K if forced to sell to pay the freight. And a 10% Bid/ask spread is not uncommon with illiquid options; so the profit may well be reduced if the options don't ultimately expire worthless. And 2003 is the current view for the end of this upleg. I'm also interested in what Tito has to say; but the strategy sounds like it may have a higher risk than the lurker thinks. Ian.

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