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To: dougjn who wrote (3093)	5/19/1998 5:17:00 PM
From: Fernando Saldanha	Read Replies (2) \| Respond to of 10852

"how do you figure out whether a leap is pricy or not, relative to the underlying stock's price?" Use the Black-Scholes formula to calculate the leap's implied volatility and compare that to your expectations of the stock's volatility in the period to the leap expiration. Best regards.

To: dougjn who wrote (3093)	5/19/1998 6:16:00 PM
From: ccryder	Read Replies (1) \| Respond to of 10852

You can get a estimate of how much the LEAPS price is due to volatility by estimating the interest you would pay to borrow money to buy the stock. The amount of premium you would pay above the interest is due mainly to volatility. Then calculate what price the stock has to reach to make your LEAPS worth more than the stock you could have bought with the same amount of borrowed money. This calculation ignores the value of risk removal if you bought 1 LEAPS contract (good for 100 shs plus the strike price) vs buying 100 shares of the stock. The stock price could drop more than what you paid for the LEAPS so the LEAPS have some value in removing this risk. GEOFF, lets do the numbers.