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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Jean M. Gauthier who wrote (8765)	10/24/1999 9:54:00 PM
From: Mike Buckley	Respond to of 54805

Jean, You asked about a response I made to Frank's LEAPS strategy. Having established ANY position in a LEAPS call that is intended to be a relatively conservative position, my understanding is that the time to sell is about nine months prior to expiration. Since the strategy is to make money on the LEAPS purchase, I wouldn't exercise the option unless there are some compelling tax issues to deal with. Your question indicates I might not have been clear with Frank. I think the most conservative approach is to buy LEAPS approximately in May, very soon after the derivative for the farthest year out appears on the market. Using that as the time of purchase and selling about nine months prior to expiration, the investor has about 1 1/2 years for the investment to pan out. That puts time on the invetor's side as much as is possible with LEAPS. --Mike Buckley

To: Jean M. Gauthier who wrote (8765)	10/25/1999 6:07:00 AM
From: John Walliker	Read Replies (1) \| Respond to of 54805

Jean, then when should they be sold or exercised ? On the 3rd Friday of January 2001, or before they become calls ? Anyone ? If the stock has increased massively beyond the strike price the time value and volatility component will become negligibly small in comparison with the intrinsic value. In other words the option price will be only slightly more than the difference between the strike price and the stock price. In this situation it really does not matter whether the LEAPS option is sold before it becomes a normal call. It can be argued that there is no point in exercising before expiry because doing so would tie up cash that could otherwise be used for other things. However, one possibility is to sell the LEAPS and buy a new one with a higher strike price (paying for a bit more time value) as insurance against a catastrophic fall and to release some more cash. That way, if there is some disaster you reduce your losses. However, this does have tax implications that will vary according to your circumstances. John