Hey Huesos - always look before you LEAP!
I have never looked at the payback of LEAPS - call them very long CALLS - but sniff sniff - smells similar to reg options. In Canada apparently they are the only kinds of "options" allowed in a retirement account (RRSP etc).
However, your statements seem to suggest "sure thing".
So today gold is up to $429 - you wait for a pullback - it ends at $432 - you wait - it ends at $435 - no pull back - you buy - it hits $440. It (GOLD/BARRICK) then starts to tumble. You are just slightly underwater - it continues down - even if the price of gold were to stay at $420 until Jan 2006, you have lost all your money if you never sell. Again it would be good to know the decay rate over such a period.
If you are a good guesser of direction and succeed a lot - then options might be your bag. You only need one or two great payouts to offset all the disasters.
The decay might not be as bad as short calls - typically if the call is in the money, the greatest payback is close to expiry. If you are out of the money and the stock stays out of the money, the option quickly loses most of its value and you have kissed your investment goodbye.
The most negative culprit of this stuff is the commissions eat a lot of money.
If you read my first posts (not too far back) you will see some option stuff posted.
A better strategy might be:
LONG on BARRICK (for example)
and
PUTS on BARRICK (LEAP PUTS - might not get the return that is expected)
If GOLD crashes, and Barrick follows suit, you won't lose as much - if GOLD continues higher as you believe - you lose the "insurance" you paid.
LEAPS to me are more akin to Warrants - as most Warrants are really out there. The risks are perhaps similar.
Forget your net worth - get like 1 or 2 contracts at most - and stick with a low number (even if a one time thing) like that until you can really make serious money and you CAN if you bet right. Bet wrong, and you lose money fast. Most investors/fund managers etc feel that capital is your most important asset - options are the greatest tools to erode that.
Then again, Sexton knows no LEAPS - and if the gov'ment cheese makers say they qualify in your retirement fund - they can't be all that bad... NON?
My deux cents...
Here's to your success.. let us know..
Cheers!
"When you have to shoot, shoot. Don't talk."
Tuco (The Good, the Bad and the Ugly)
"An umbrella with holes is better than no umbrella at all."
Dr. Alexander Elder on using stops.
