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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (89875)	1/19/1999 12:49:00 PM
From: Kayaker	Read Replies (1) \| Respond to of 176387

Do the leaps go down in price much during a sharp but likely short correction? To know how much LEAPS (or any options) will change in price, you have to calculate the "delta" value. It is the amount by which the call or put will change in price for a 1 point change in the stock price. You can calculate the delta values using an option calculator such as the one at the CBOE site. Take for example the Jan 2001 LEAPS calls (by the way LEAPS can be either puts or calls). Strike Price Delta 100 .571 90 .630 80 .693 70 .758 60 .823 So, for example, if you buy the Jan 2001 100 calls, they will increase/decrease .571 points for every point rise/drop in the stock price; the Jan 2001 60 calls will increase/decrease by .823, etc. (it's actually a bit more complicated, because the delta changes as the stock price changes) The Jan 2001 100 calls are currently 21.5 (bid) x 22.5 (ask). So, even though they move only .571 points for every 1 point move in the stock, the % move is greater (.571/22 for this call versus 1/81 for the stock). Option prices are also affected by the volatility of the stock. If the volatility goes up, the option prices will go up as well. For example, for the Jan 2001 80 calls, if the volatility goes up by 1%, the price of the calls will go up about .43 points (Options as a Strategic Investment, L.G. McMillan, page 349). PS. I like LEAPS calls quite a bit. Usually 80-100% of my Dell investments are Jan 2001 LEAPS calls. The time value deteriorates slower than it does with shorter term calls, you have lots of time to wait out a correction, and you get more bang for your buck than you do with the stock.