Well OTM's can really hit you a home run if they hit and are much cheaper as you said, but ITM's are far more conservative in that you dont have to have a big move to get great appreciation. I am bullish on aol, but still realistic that market/world conditions can have an effect on any stock. Additionally, you must compare the premiums of each....every stock has different premiums based on many different factors. For instance, in AOL's case, the $40 leaps were relatively cheap as compared to say another stock with $40 2003 strikes. And when compared to the otm's, I felt the safety of the itm's combined with the cheap premium, made the ITM's a better play.With that said, it would not be a bad idea to grab a few OTM's with 2003 strikes, but I wouldn't go too far OTM, simply because of the uncertainty of things. Will Aol be at $100 in 2 years.....I think so, but can't guarantee it. Will Aol be as low as $40 in two years.....I dont think so, but it could be........if it is, I am pretty well protected, and frankly, whether the tw deal passes or not, I think aol is alot higher in 2 years......with that said, I do have a couple of OTM's, just to play with.....
Good Luck
Keith |
