More on LEAPS
Thanks Marguarita, Doug, Tito and Big Shoulders for your comments.
Found one of your posts on LEAPS, Tito (10700) but couldn't find any by Jacob Snyder, search of text came up empty.
Big, I am not enough of an expert to hazard the specific predictions that you requested--5 to 10 years growth projections and accompanying eps gains. I am more impressionistic in my view of such things, using Infrastructure as a main source of data together with estimates/ideas about secular trends from such places as SolomonSmithBarney. Among other of their analysts, Louise Yamada puts out studies on predicted growth of the technology sector as a whole; she judges the sector to be in a strong secular bull trend with no top in sight. Based on these sources plus the day-to-day intake of information from such places as WSJ, this thread and others in semi equip, and Zacks... Into that, factor personal tendencies to overoptimism.
One reason for that stance--or at least irritant to it--is being fully invested in stock. Holding out cash and going to options might help me to adopt a more neutral/balanced attitude.. In that respect, I am in agreement with Doug's comments (17718).
In terms of projections for AMAT stock price, I think that Gottfried's statistics are useful: YE98=47.9 (SD=8), YE99=76.7 (SD=14), post 17576 has a link to his stats. I used them in a little study of LEAPS for Jan 99 and Jan 00, using the prices from www.cboe.com on Sat. My conclusions are as follows:
Jan99 LEAPS: Let's assume that the stock actually is at 40, 45, 50 or 55 at that time. At 40, only 25s and 30s are profitable; and they make about as much as holding the stock till then. At 45, 25s, 30s and 35s are profitable; and all yield about twice what you'd get with holding the stock. At 50, 25s throgh 45s are profitable, 35s are the most profitable, 25s, 30s and 40s nearly as much and 45s least. 35s are 3 times more proftiable than holding the underlyling stock. The second group about twice as profitable, and 45s about as profitable as holding the stock. At 55, all are profitable, with 35s being 3 tmes as profitable as holding the stock, 40s and 45s nearly as profitable, and 25s and 30s more than twice as profitable.
So, if Gottfried's estimate is close, 35s seem like the best bet. You'd do well if the stock ends from 45 to 55 and above. Somewhat more consevatively, 30s protect down to 40 and do well above that though perhaps 20% less than 35s at 50 and 55.
Jan00 LEAPS: Let's assume the stock ends at 45 through 75 in 5-point intevals. At 45, only 25s and 30s are profitable, 25s about 50% above holding the stock and 30s about 50% less. At 50, 25s and 30s are profitable and both about 50% over stock. At 55, 25s through 35s are profitable and all nearly twice as much as stock. At 60, 25s through 45s are profitable and all about twice as much as stock. From 65 and up, the 45s become increasingly profitable in comparison to the others, with the amount of that increase more than negligible at 75 and above, at which point they gain 2.5 times what holding the stock would yield.
So, using Gottfrried's predictions, it seems that 45s are a good bet.
Thus, I am considering buying Jan99 35s and Jan00 45s. If the stock moves up strongly by the end of the year, the former will do very well and more of the latter could be bought.
I'd be interested to get comments on my computations and proposed strategy. For one thing, do others come to the same figures!? Being a statistics teacher in a former life--in the hell, I mean, halls of academia. I think that I probably got it right; but it's always good to get confirmation. For another, how would others play these LEAPS? Or does someone think that they aren't a good deal for some reason(s)?
Thanks,
Bruce |
