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Technology Stocks : Intel Corporation (INTC)
INTC 49.25+0.9%Feb 3 3:59 PM EST
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To: Joe NYC who wrote (36672)10/18/1997 12:37:00 AM
From: Ibexx   of 186894
 
josef,

Re. What is your strategy when you buy leaps. In, at or out of the money? 1999 or 2000?

I have posted on this subject numerous times, thus I shall try to be brief here.

If you look at the statistical time decay of a call option, the time premium begins to erode exponentially beginning somewhat around 9 months before the expiry date.

For high quality stocks with a sustained growth curve such as INTC, I would pick a strike price such that it would become in-the-money (or at least at-the-money) 9 to 12 months before the expiry.

This way I would capture the sweetest spot of an option where the "delta" change is the greatest (namely, right before coming into money) while still enjoying a window of safety. For instance, I might expect INTC reaches $110 in April of 1998, and the 99LEAPS for me to consider would be the one with strike price of $110.

In general, I dislike deep-in-the money LEAPS (they are for the wimps only) as I look for maximum leverage (balanced with safety) which the D-I-M options do not provide.

For y2k LEAPS calls, I would go further out-of-the money by applying the above empirical rule.

Hope this helps.

Ibexx
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