RE: Dell Leaps
The 2001 Dell Leaps, 100 strike price, will give you slightly more leverage than an outright purchase of Dell; by my calculations, about 1.25 to 1. Although slightly riskier, I would recommend instead the 2000 Leaps, using the 100 strike price; by my calculations, you would get about 1.84 to 1 leverage with these. By "leverage", I mean that for every 1% increase in Dell's price, these Leaps would increase about 1.25% and 1.84%, respectively.
You would get even more leverage if you were instead to buy additional Dell on margin. Margin carries with it the risk of a margin call, but you can get up to 2 to 1 leverage through use of margin (assuming that your account is sufficiently diversified to satisfy your broker's requirements). Through the use of margin, you can also defer indefinitely payment of taxes on gains, simply by never selling your position. I don't recommend full use of margin unless you fully understand the risk of a margin call. However, you could safely match the leverage of the 2001 Leap by using a conservative 1.25 to 1 leverage in your margin account.
These leverage ratios are the initial amounts; they vary with the passage of time and changes in Dell's price.
JB |
