"So you feel that the stock will be stagnant for at least the next 6 months? Would buying leaps at these levels be good moves?"
Andrew,
First off, if you believe that the stock will be stagnant for the next 6 months, you would not want to buy LEAPs now, as they will cost about half as much at the end of those 6 months.
I think before you can answer your question, you have to make a decission on what you think the market will do for the next year. It's really a tough question.
I've seen some predict the market will continue to slide thru the second half of next year to 6000. And realize, even if WinStar is able to buck this type of market and say rise 20% to 30 over that time period, if you bought the Jan 00 35 LEAPs for around 5 today, they could be worth only 2 1/2 or so during the latter half of next year. So WinStar is up, but you're down 50%. Now you need a double within a few months just to break even. If this were the case, you'd be far ahead to keep your money in a money market and buy the LEAPs later. Remember, options depreciate every day, even if the stock stays flat. So if WinStar hits 25 in December, the same LEAPs you'd pay 5 for today would probably only cost you 4 or so in Dec.
If, on the other hand you think we've seen the worst and the bull market is ready to resume and WinStar can reach 100 by the end of next year, it won't matter too much if you buy them for 2 1/2 or 5 or 7 or whatever, you're going to make a lot of money. Of course, if first it goes lower and you have the discipline and timing to buy at 2 1/2 instead of 5 now, your return is going to be twice as high.
So it's a tough call, one I haven't been able to make yet. My feeling now is that there is no reason to put any long term money in right now. With a weak market and October and tax loss selling coming up, I'm guessing that you'll be able to buy any of the LEAPs cheaper somewhere in the future. On the other hand, they may accept a $70 takeover offer tomorrow, and the risk of missing that move may more than offset the risk of buying at 5 and watching it drop to 2 1/2.
So there's no real answer to your question. Just giving you some things to think about. It really just comes down to how you except and deal with risk and what the market does. |
