David, you wrote:
I've been
watching GTW now for several months, thinking (gasp) about LEAPs and calendar
spreads. Only trouble is, I don't think I can buy the LEAPs on margin, so it eats a
big hole in my buying power.
even, if you can't buy LEAPS on margin.....you, in a very similar way....ARE buying the stock on margin...when you buy LEAPS
Let's say you'd like to play DELL, and you want to CC every month for a while. DELL is at 37 5/16....you'd like to play 10 contracts...so if you bought the 1000 shares it would cost you about $37,310. Let's say you only have $20,000 in your account...although we all know you're worth bezillions.
at 50% margin, you don't have enough to buy the 1000 shares.
BUT you can buy the Jan 2001 DELL LEAPS calls at 15 3/4....so you buy 10 contracts....which costs you $15,750. you still have $4,250 in your account, since you bought these LEAPS with Cash.....then you sell the Aug 40 calls at 3 5/8...and put another $3,625 into your acct.....so now of your prior $20,000...you have $7,875 left....having invested net $12,125 (LEAPS $15,750 - CC revenue $3,625)....anyone care to check my math, please do so.
So LEAPS allow you to basically own the stock, CC it....and they may cost less than half the stock price...so they're cheaper than buying the stock on margin. |
