Stan my friend, frankly, your analysis of the AMAT options scenario concerned me enough to offer some brief clarification and commentary:
1) The Jan 04 $10 Calls closed Friday with a bid/ask of $6.50/$6.80, significantly above the $4 price you referenced.
2) So, let's say ya bought those 50 contracts for $6.65, that would cost ya $33,250.
3) Thus, a Jan 04 AMAT closing price of $20 would net ya about a 50% return (your $33K play would then be worth $50K).
4) If you had instead bought the stock outright at $14.32, you could have purchased 2,322 shares with that same $33,250.
5) Thus, a Jan 04 AMAT closing price of $20 would net ya a about a 40% return (your $33K play would then be worth $46K)
6) On the flip side, a Jan 04 AMAT closing price of $10 would lose ya 100% of your leap play compared to 30% of your stock play.
Hmmmm... pretty risky IMO.
Stan, It's my personal belief that options can add a little spice to a position, but should be used sparingly. Ya gotta keep in mind you can lose the whole enchilada buyin' dem leaps. Playin' with a few speculative contracts can be fun, but I don't consider them investments. I urge you to please be careful here and consider downsizing your potential position... all FWIW and since ya asked.
Good luck with however ya play it!
AdvocateDevil |
