Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: TMFHamp Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1200  
Subject: Re: LEAPS as Stock Substitute Date: 3/19/2007 4:27 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
<<It would seem that after a big dip would be a good time to buy LEAPs, but oftentimes a big dip will cause IV to spike up, driving up the price of the option, yes? Or is it better to find a relatively stable stock that has flatlined for a while or traded within a tight range, resulting in a lower IV?>>

Hi Paul,

You are a wise man and correct on all counts. During a big market decline, implied volatility (IV) skyrockets and buying options is a mistake. I would sell puts or buy/sell vertical spreads in that case.

Buying LEAP calls works best for stocks with strong fundamentals that have flatlined for a while (i.e., IV is subdued) and ready to move up over the intermediate term.

Current examples: Whole Foods (WFMI) and BJ Services (BJS)

Jim


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next

Announcements

Feste Award Winner Announced!
Congrats to the Winner of the 2013 Feste Award!
Post of the Day:
Berkshire Hathaway

Why Should Berkshire Hathaway Survive?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement