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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Jean M. Gauthier who wrote (45853)	10/22/1999 10:42:00 PM
From: RoseCampion	Read Replies (3) \| Respond to of 152472

Jean: I think you're making this harder for yourself than it needs to be. Most options holders treat their options as entities onto themselves, to be bought and then sold later, hopefully for a profit. Very, very few are exercised for actual shares (except by exchange specialists/arbitraguers, but that's another story entirely). In any case, your're not wrapping your head around this quite right. To exercise now you actually would have to pay: $ 16,000 for 100 shares at $160 each (your LEAP is a contract to buy Q at exactly $160/share) - $ 0 for the LEAP (you exercised it, so it goes away - no $101, no $57, nothing) =========== $ 16,000 Balance you have to pay So you end up with 100 Q shares having paid $5,700 for the call at some time in the past and $16,000 to exercise it, for a total purchase price of $21,700. Since you could buy those shares on the open market today for $21,500, you're losing money doing that. But if you sold the option today, you'd net $10,100 - $5700 = $4400. Tomorrow, who knows? If you want to hold options to expiration, and then exercise them to buy stock (yes, they will be automatically exercised for you if more than 1/4 point in the money at expiration without you having to do anything), that's a certainly a choice you can make. The only advantage in doing that, though, is that you will not have to pay capital gains on your option profit - if your call is exercised, it becomes part of your (now very low) basis in the shares of the company you use it to purchase, and so you won't pay taxes on your total gains until you actually sell those shares sometime in the future. So...why exercise now and be forced to cough up $160 and give up the $101 your option is actually worth, when the LEAP is very happy just to sit there for some time to come and get more and more valuable with every point that Q rises? (Note for the options cognecenti among you: serious time decay won't even start knocking value off this call until about nine months before expiration, so he has many months left to sit on it with no cost). There's more, but too much to go into here. Suggest you (a) read the SI thread on "Options for Newbies" and post questions there (I certainly have!), and (b) pick up a good basic options text and start reading ("LEAPS" by Harrison Roth is highly recommended by all). You're sitting on a gold mine - now you just need to go learn a little geology. Congratulations. =Rose=

To: Jean M. Gauthier who wrote (45853)	10/23/1999 2:06:00 AM
From: Uncle Frank	Respond to of 152472

Jean, I can't improve on the excellent job Rose Campion did in answering your remaining questions. Just remember that you can either exercise the option and buy Q at 160/sh. OR you can sell the option for its current value. You can't apply the value of the option to the purchase of Q should you decide to exercise; this game does not let you have your cake and eat it too. Regards, Frank

To: Jean M. Gauthier who wrote (45853)	10/24/1999 12:34:00 AM
From: Jon Koplik	Read Replies (2) \| Respond to of 152472

Jean - just to complicate things further -- here is an old post on early exercise of puts. ********************************** Subject: Qualcomm - Coming Into Buy Range To: Labrador From: Jon Koplik Apr 5 1999 11:34AM EST Reply #26093 of 30823 Mathematics of early put option exercises. (Warning -- this is stuff I learned in business school, but -- it DOES actually apply to the "real world.") Put = Call - StockPrice + PV(ExercisePrice) Call = Put + StockPrice - PV(ExercisePrice) (PV means present value or ... e ^ (-rT), in case you want to be reminded how glad you are NOT to be in school right now) If you work out an example of a deep in the money put, the above calculation will yield a put value that is below the value that can be realized immediately if one exercises the put option as soon as possible. Moral of the story - ALL deep in the money (American, NOT European style) put options will be exercised early, unless you are lucky enough to have a moron on the other side of your transaction. ** American options can be exercised any time during the life of the option. European options can ONLY be exercised on the last day of the life of the option. Jon.