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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Raven McCloud who wrote (13039)	3/16/1999 1:20:00 AM
From: Sherman Chen	Respond to of 14631

I just asked the question, is it better to buy in the money leap calls, say Jan 2000 5's, or out of the money leap calls like JAN 2000 10's. The premiums on the out of the money calls are a lot less, so you can buy more contracts if you're willing to take the risk.

To: Raven McCloud who wrote (13039)	3/16/1999 2:09:00 AM
From: James A. Shankland	Respond to of 14631

Sherman, if you have a moment could you explain the "leap calls" trading strategy? The idea is that you increase your leverage by buying LEAPS instead of the underlying stock. You increase your risk, too. For example, you can buy Jan01 IFMX 5 calls for about 4 3/4. This gives you the right to pick up IFMX for $5 per share (plus, of course, the 4 3/4 you are paying up front for the option) any time until January 2001. If you believe IFMX will be over 20 by then, you get a larger percentage gain by investing your (fixed) life savings in LEAPs at 4 3/4 rather than in actual IFMX shares at almost twice that. On the other hand, if IFMX is trading at 6 come January 2001, you would have lost about a quarter of your life's savings if you had invested in the actual stock; the LEAPS will be worth a dollar, so you would have lost almost 80% of your life's savings. Sherman suggested buying out of the money LEAPs like the Jan01 IFMX 10 call for about $3. This gives you the right to buy IFMX at 10, and since the option is cheaper, you can buy more of them. Your risk increases commensurately: if IFMX is below 10 in January 2001, the option expires entirely worthless.