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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Tito L. Nisperos Jr. who wrote (13503)	12/17/1997 1:06:00 AM
From: Lane	Read Replies (1) \| Respond to of 70976

Tito: Thanks for the input. I think we will go higher tomorrow (12/17) due to the recent news. With options expiration on Friday, the bias will be to close near 32.5 by then. We shall see. But then the TA is biased downward (imo) so who knows.....let me know when you position to take advantage of the drop (hope I never hear from you on this point!! gggggg)

To: Tito L. Nisperos Jr. who wrote (13503)	12/17/1997 4:36:00 AM
From: Jacob Snyder	Read Replies (3) \| Respond to of 70976

LEAPS vs margin: some math and guesses: Let's suppose I invest 10k by buying 345 shares of AMAT @29. Then, I use half my capital (the most I feel comfortable doing) to borrow 172 more shares, for a total of 517 shares. Let's suppose I hold for two years, till 12-99, and the stock doubles in that time, to 58. The margin cost is 6.75% x 5000 x 2 years = 675$. So, I end up with (58 x 517)-675=29,311$ I'm ignoring commissions and the spread for this exercise. Let's suppose I invest 10k by buying the longest-term in-the-money LEAPs: 30 calls, expiring in Jan 2000, which cost 12.25$ today. I buy 816 of them. Yes, I know I have to buy in lots of 100, but I'm just doing math here. If I hold for two years, and if the underlying stock doubles to 58, then by 12-99 the time premium will be gone. The options should be worth about 58-30=28$ each. 28 x 816 = 22,857$. If I sell them 6 months before they expire, they might have an additional 4$ time premium in them. Again, I'm ignoring commissions and the spread, both of which will be costlier in LEAPs than in the stock. If I make the same assumptions, except I buy calls with a strike price of 40, which cost 9$, then I buy 1111 options, and I make (58-40) x 1111 = 20,000$. Being more optimistic doesn't get me anywhere. Let's say the stock triples, from 29 to 87. Those 517 shares on margin are worth 44,979$, minus 675 interest leaves 44,304$. If I had bought the 30 calls, I would have (87-30) x 816 = 46,512$ This is the only set of assuptions which ends up with LEAPs making me (slightly)more money. The underlying has to do extravagently well. Let's get pessimistic.The stock stays at exactly 29$ the entire 2 years. Or maybe it doubles, but I don't sell because I'm hoping it will triple, and then something happens (bad debts or war or whatever) in some far-away country (maybe in Asia, maybe elsewhere), and the stock is at 29 in 12-99, and I didn't time the peak. If I'm holding the stock, I have my original 10,000 minus the 675$ interest I've paid, equals 9,325$. If I bought the LEAPs, they are worth 816 times zero equals........ Maybe this math will look better in July 1998, when I can buy Jan 2001 LEAPs, hold for 18 months, and then either sell (getting long-term cap gain taxation), or roll them over with a time premium intact. I've never bought options, I'm just thinking and doing numbers. I'm trying to find a least-long-term-risk, greatest-long-term-reward strategy. Could some of the more experienced people tell me, are these numbers accurate? Are these assumptions realistic?