A.I.M. Users Bulletin Board

[Toofuzzy]

I did something interesting the other day.

Usually I do not BUY options. They decrease in value over time so time is on your side when you SELL them and against you when you BUY.

I wanted to buy more SLW but instead of buying the stock I bought really really deep in the money CALL options JANUARY $13 options and paid $11 / share So I have the RIGHT but not the obligation to buy SLW for a total of $24 a share (13 + 11 = 24 ) which was SLIGHTLY more than the then current price.

Option PRICES increase the more it is in the money but the TIME PREMIUM DECREASES the more it is "in the money" and the more money you are putting in up front.

It becomes like buying on margin without paying margin interest. This is something Cramer suggested in one of his books.

So I have more cash in my IRA account that I can use to buy something else and if SLW is above $32 between now and the end of January I will sell the option at a profit equal to the price rise in SLW (because there was very little time premium to lose) and if not I will take delivery for the additional $13 / share. I suppose I could also role the contract out to a further date for an additional cost also.

Even if I use the excess cash to buy something else, in January I will be making another $6500 contribution to my ROTH IRA and have the money to buy the contracts.