Thanks, Judy, for the eloquent discussion of LEAPS as an investment vehicle.
Owning LEAPS cost a bit more than buying on margin, but with never a margin call, and with less capital at risk. I took the following data from today's option pricing for AMAT.
Prices are for the $30 call, with the stock about 39 1/2.
Calls.............................LEAPS
JAN99/APR99/JUL99/JAN00/JAN01
10.75/11.88/12.88/14.5 /18.13
Premium and Spread
1.25/ 2.38/ 3.38/ 5.00/ 8.64
Annualized Premium (Dec + Jan = 2 months, Apr = 5 months, etc.)
7.50/ 5.71/ 5.07/ 4.61/ 4.15
So a 25-month leap costs /$4.40 per year, plus your risk cost of capital of $9.50 on the table for all that time. You could also sell covered calls over the two years, being careful not to be too greedy, so as to get your LEAPS called away.
This is the way I see it, and assuming all the math is correct, <g>
Dennis |
