Darlene Nelson

Discussion in 'Options' started by searching, Apr 24, 2004.

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    Has anyone heard of or attended her LEAPS program? Does it work?
     
  2. nkhoi

    nkhoi Moderator

    LEAPS work but I have no idea who is Darlene
     
  3. Long-term Equity Anticipation Securities, also known as LEAPS, are equity options with expirations of up to two years. Like other options, all LEAPS expire on the Saturday following the third Friday of the expiration month. All equity LEAPS have January expiration dates. Index LEAPS expire during various months.

    Michael B.

    P.S. I have no idea about what I am talking about...so don't ask
     
  4. http://www.amex.com/?href=/options/eductn/op_edu_whatIs_leaps_pg1.html



    Buying LEAPS Calls
    An investor anticipates that the price of ZYX stock will rise during the next two years. This investor would like to profit from the increase without having to purchase shares of ZYX.

    ZYX is currently trading at 50½ and a ZYX LEAPS call option, with a two-year expiration and a strike price of 50, is trading for a premium of 8½ or $850 per contract. The investor buys five contracts for a total cost of $4,250, which represents the total risk of the call position. The calls give the investor the right to buy 500 shares of ZYX between now and expiration at $50 per share regardless of how high the price of the stock rises. To be profitable, though, at expiration, the stock must be trading for more than 58½, the total of the option premium (8½) and the strike price of 50. The buyer's maximum loss from this strategy is equal to the total cost of the options or $4,250. The break-even point for this strategy is 58½. The following are possible outcomes of this strategy at expiration.

    Stock above the break-even point
    If ZYX advances to 65 at expiration, the LEAPS will have a value of approximately 15 (the stock price of 65 less the strike price of 50). The investor may choose to exercise the calls and take delivery of the stock at a price of 50, or may sell the LEAPS calls for a profit.

    Stock below the strike price
    If ZYX, at expiration, is trading for less than the strike price, or below 50 in this example, the unexercised calls will expire worthless. In this case, the investor will incur the maximum loss of $4,250.

    Stock between the strike price and the break-even point
    If ZYX, at expiration, has risen to 56, the calls will be valued at approximately 6 (the stock price of 56 less the strike price of 50) and will represent a partial loss given the break-even point of 58½. The calls purchased by the investor for 8½ will, upon exercise, then be worth approximately 6, creating a loss of 2½ points or $250 per contract. If the investor does not exercise or sell these options, the investor will lose all of the initial investment, or $850 per contract.

    Prior to expiration, the LEAPS may trade at a price that is somewhat higher than the difference between the 50 strike price and the actual stock price. This difference is due to the remaining time value of the contract and the possibility that the stock price may increase by expiration. Time value is one of the components of an option premium and generally decreases as expiration approaches.

    Buying LEAPS Puts
    The purchase of LEAPS puts to hedge a stock position may provide investors protection against declines in stock prices. This strategy is often compared to purchasing insurance on one's home or car, and may give investors the confidence to remain in the market. The amount of protection provided by the put and the cost of the protection, sometimes evaluated as a percentage of the stock's cost, should be considered.

    For example, ZYX is trading at 45 and a ZYX LEAPS put with a three-year expiration and a strike price of 42½ is selling for 3½ or $350 per contract. These puts provide protection against any price decline below the break-even point, which for this strategy is 39 (strike price less the premium). The investor's risk or maximum loss is limited to the total amount paid for the put options or $350 per contract. The following are possible outcomes of this strategy at expiration.

    Stock above the break-even point
    If ZYX is trading at 48 at expiration, the unexercised put would generally expire worthless, representing a loss of the option premium or $350 per contract.

    Stock below the strike price
    The put would be profitable if the stock closed below 39 at expiration. If ZYX is trading at 37½ at expiration, the 42½ put, upon exercise, would have a value of 5 or $500, representing a profit of 2½ points or $250 per contract. This profit will partially offset the decline in the value of the stock.

    Stock between the strike price and the break-even point
    If ZYX is trading at 41½ at expiration, the 42½ put would be valued at approximately 1. This means that, upon exercise, a portion of the option premium would be retained and the loss would then be 2½ points or $250 per contract. If the contract is not exercised or sold, the investor will lose all of the initial investment, or $350 per contract.


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    Although we have outlined for educational and informational purposes the basic options strategies that investors may find useful, this discussion is in no way complete. We encourage investors to fully understand the risks associated with options trading by thoroughly reading the ODD and asking questions of your broker. For your information, please read this website's Disclaimer.
     
  5. Please excuse me for going off topic. I wanted to educate myself about LEAPS because of your thread. I thought this might be helpful to others. About Darlene who is she? what is the link?

    Michael B.
     
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  7. nkhoi

    nkhoi Moderator