If the price of the stock is <=$10 when the options expire in Jan '98, then you lose your money. The safest option play is risky as hell. If BORL is at $12 in 6 months, the $10 option would be 2 plus the premium. The premium is the value the market places on having six months to go on the option. As the expiration date approaches, the premium will decline until, at expiration, the premium is zero.
I believe the $10 calls Jan 98 will still have some value in 6 months if the stock is at 5 or 6; but obviously, the value would be some less than it is now. My point was that the "amortization" of the premium occurs less in the earlier months and more in the later months. So, for example, if you buy the calls with 12 months to go at 7/8, they may still be worth 1/2 - 5/8 six months from now. In effect, for a cost of maybe 1/4 to 1/2, you have the benefits of owning the stock for a year. ....David |
