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So if you buy NTAP at 127 1/2 and sell the LEAP at 37 1/2 you are in NTAP at a net price of $90. Now what can happen? Well NTAP could keep going up and go beyond the strike price of $160. Your stock could get called forcing you to sell it at $160. This is a return of
77%. Or NTAP could stay right where it is at 127 1/2. This would be a return of $37 1/2 on your $90 of about 41.6%. Or it could go down forcing you to stay in NTAP at a reduced cost which seems to me to be a lot better than buying the stock outright at $127 1/2. I'm not
saying it isn't worth 127 1/2 I'm just saying why wouldn't you want too improve your odds.


Let's see, buy 100 share's @ $127= $12,700
Sell 1 Jan 2002 call at $37 1/2 = 3,750
Cost of 100 shares = 8,950 ($89.50 per)

Or use the $3750 to buy more = $3750/$127.5
= almost 30 shares.

If the price never reaches $160 by Jan 2002, you have a much lower price point, If it does, you've either bought 30 shares for free or have taken what you consider reasonable profit. 'Course you still have to have the original $12,700, but as long as you don't mind carrying the extra shares (up to 130), sounds good to me.

Tim
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