Buy 2002 $110 leaps at $13 5/8. At expiration , sell 50% of the leap and exercise the other 50% , and hold them for long long time. By the end of 1999, this leap will definitely deep in money, and your time cost per month for 30 month is
$13.625 / 30 = $0.454 / month. If Microsoft appreciates $2 per month for the rest of
24 months after Jan 2000, the profit to cost ratio is 440 % , not bad at all. If MSFT appreciated another 150% by year 2002, say $250 , then your profit margin is
(250 - 110) / 13.625 = 1100% , in 2 and half years , not bad at all. However, I will always exercise my Leap option at expiration , and did this since 1994 for free shares( with little time premium) , i.e exercise 50% and exercise the other 50% for free... |
