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Let's say you wanted to go long in a stock. You are quite sure of its
future. But you don't have enough cash for more than 20 shares until 9
months from now (tied up in something else or cash inflow is expected 9
months out).
Buying Leaps calls in that stock could possibly get you control of 200 or
more shares. Plus if you were right about the stock, the Leaps could get
you those shares in 9+ months at a bargain price. Or you end up just
cashing them in for a pretty good profit.
Its like a method for buying stocks on a down-payment plan. Shorter term
options see quite a bit of erosion of time value while you wait for the
underlying stock to rise to where your option has real gains. Shorter term
options mean you are not just bullish on the stock long-term but in the very
near future.
Leaps do not lessen the risk a lot, but give you more time to react before
time-value erodes and allows you to ride through dips in the underlying.
This requires patience, just like owning the stock.
-----Original Message-----
From: BrentinUtahsDixie <brente@xxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Thursday, April 22, 1999 10:38 AM
Subject: Gem: Leaps
>Can anyone that is really up on Leaps give me (us) a short course on their
>use, advantages, dis- advantages, size of account needed to utilize them,
>and any other pertinent information.
>
>Brent
>
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