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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: tekboy who wrote (44005)6/30/2001 11:22:08 AM
From: Uncle Frank  Read Replies (1) of 54805
 
>> I mean, there's rarely such a thing as a free lunch, so the difference in price must necessarily be largely correlated to a difference in either risk or reward. Since the risk is actually lower for the 04s, the missing factor here must be that the 02s would provide a significantly greater reward should the stock go up a lot between now and January

It's not related to risk or reward issues, Tekboy. What you sacrifice when you buy the longer term option is leverage. The longer term leap costs more in absolute terms, so if the stock should rise in the short term and you sold, you would realize a lower % return than you would have on a short term call.

cuf
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