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To: ggamer who wrote (32601)	9/29/2000 1:20:09 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

ggamer, About limiting the exposure: You presumably bought the LEAPS instead of the common stock because the potential for percentage of increase in the value of your investment is greater with LEAPS than with common stock. Hopefully you were also aware that the leverage works both ways, that the potential for percentage of decrease in value was also greater with the LEAPS. Had you exercised the contracts, you would have owned the common stock which is less volatile (in both directions) than the LEAPS. Thus your exposure would have been lessened by converting to stock. I didn't bother looking up your particular LEAPS but I did look up the Qualcomm LEAPS of the same strike price and expiration date. Both LEAPS are well into the money so the basic principals would apply similarly to both contracts. The LEAPS are priced at about $31 at the time the (Qualcomm) common stock is priced at about $74. Because the LEAPS are far into the money, for each dollar movement of the underlying stock price in either direction the LEAPS contract will also move about one dollar. Let's assume the underlying stock decreases $11 to a value of $65. During that time it's likely that the LEAPS will also decrease $11 to a value of about $20. While that's a 12% decrease in the value of the stock, it's a 35% decrease in the value of the LEAPS. Thus, had you exercised some of the contracts, you would have limited your downside exposure. (Don't take those numbers literally. The market reacts to the value of LEAPS slightly differently in the very short term and the dollar-to-dollar correlation I assumed should be taken only as a rough guide. Still, it ain't a bad guide.) And of course, I gotta remind you that paying taxes dramatically limits the wonderful compounding effect over long periods of time. Had you exercised some contracts, your tax payments would have been lower. I agree with Lindy about the danger of margin. Had you decided to exercise some contracts, I would have encouraged you to think about selling enough of the contracts to generate the cash needed to exercise the remaining contracts and at the same time eliminate your margin. Hope this helps! --Mike Buckley

To: ggamer who wrote (32601)	9/29/2000 10:43:02 PM
From: Mike Wilhelm	Read Replies (1) \| Respond to of 54805

GGamer, I would like to add one thought on excercising LEAPS; compare the amount you will "give away" in time premium by excercising vs. the amount you will "give away" in taxes by selling. Sometimes you may be better off to sell the LEAPS, pay the taxes, and immediately buy the stock. In the example you gave, the time premium was 17.6% of the market value of YDSAL at today's close. [using closing bid of $62.25 on YDSAL, closing price of $111.313 on SEBL. Time premium was $10.937 ((62.25 - (111.313 - 60.00)); divided by market value of 62.25 = 17.6% of total. So by excercising you would have "given away" 17.6% of the market value of your investment in the form of a windfall to the lucky person who was short YDSAL and got to close out their losing position for only $51.313 (buy SEBL at 111.313 - 60.00 sale price to you). To illustrate my point, I will make up an example of how much you may have "given away" in taxes. I will assume that the gain is long term, your marginal tax rate is 25% (20% federal + 5% state), and that your cost basis on the LEAP is $25. By selling at $62.25, you would have a taxable gain of $37.25. This means that 59.8% (37.25/62.25) of the market value of your investment is subject to tax at 25%, or in other words 15% (59.8% x 25%) of the market value of your investment would be "given away" in the form of a windfall to the state and federal governments. Mike@forgivemeIwasanaccountantinaformerlife.com