Gottfried, RE “Would it not be better to buy the $40 2003 calls than the $50 2003 calls?…”
It depends upon the PEAK price of AMAT later. If the PEAK should be 100 only, the 3003 50 LEAP Call will slightly outperform the 40.LEAP Call. At 200 PEAK, the better for the 50. Here’s why: —-
(Since you are very good in doing SpreadSheets, maybe you could enter some values to compare the two).
Let’s say for the price of 200 Sh AMAT @ 50.75 (close price today) = 10,150, we can acquire: —-
4 Calls 2003 40 (10,150 / 23.30 ask / 100 sh = 4.35) total investment amount = 9,320
5 Calls 2003 50 (10,150 / 19.10 ask / 100 sh = 5.31) total investment amount = 9,550
Here are the results, assuming No Time premium left on the Calls : —-
For the 4 Call 2003 40 —- 100 PEAK Price – 40 = 60 * 4 * 100 = 24,000
For the 5 Call 2003 50 —- 100 PEAK Price – 50 = 50 * 5 * 100 = 25,000
Not much advantage of the 50 over the 40 considering you have more Peace of Mind holding the 40 over the 50.
But should the PEAK be at 200, the result would be: —-
For the 4 Call 2003 40 —- 200 PEAK Price – 40 = 160 * 4 * 100 = 64,000
For the 5 Call 2003 50 —- 200 PEAK Price – 50 = 150 * 5 * 100 = 75,000
Probably some Experts on Option Pricings could enlighten us further. |
