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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (661)	1/5/2000 5:06:00 PM
From: RoseCampion	Read Replies (1) \| Respond to of 8096

So the same $ amount of those options is 4 x 322/300 or over 6 times the leverage of the common. Actually, Jill, in response to a PM, I realized that I was performing the mathematical equivalent of comparing apples and Fruit Loops. Here's another attempt, using tonight's closing prices: Q at 156; Jan 2001 200 LEAP call selling for about @ 36.5 Assume Q has doubled from today's price on 1/5/2001 Common will be worth 312; net gain of (duh) 156. Option will be worth ~112.50, net gain of 112.50-36.50=$76. But stock costs 156/36.5=4.27 times what the option does, so option leverage is 76/156 = .487 x 4.27 = 2.08. Now assume Q has tripled from today's price on 1/5/2001 Common will be worth 468; net gain of 312. Option will be worth ~268.50, net gain of 268.50-36.50=$232. So option leverage is 232/312 = .744 x 4.27 = 3.175. Now assume Q only goes to 190 by 1/5/2001 Common will be worth 190 for a gain of $44. Option will be nearly worthless, loss of about $35. Leverage comes at a price. As you can see, playing with OTM options, calculations of leverage depend greatly on your expectations for the stock's future value. That's why I use that spreadsheet I posted to help determine the "ROI" value of a series of calls or puts. -Rose-