peter, sorry i miss read your question. don't divide by the leap price. and your calculations are correct other than dividing by the delta. the jan 10-113 strike is around 1.47 with 23 dte probably be around 1.60 for a full 30 days. so 400 shares would yield around 640 dollars. the reason is the Implied volatility is very low around 16% drjoe
--- In ConservativeOptionS
>
> Drjoe. Thanks for the response.
>
>
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> I am sorry I omitted to divide by the delta of the LEAP to get the
> contracts, but this made little difference to my calculations. I did use the
> same LEAP - Dec12 80
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>
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> So I should divide my $40,000 by the PRICE of the leap and not the current
> price of the SPY?
>
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>
> The strategy on p6 states
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> How many contracts of the leap should we purchase?
>
>
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> Above we allocated, in our buy-and-hold portfolio, $500,000 and for this
> example we allocated all $500,000 to SPY. SPY at $123.84 we would own 4037
> shares (500,000/123.
> Therefore, we would have 40 leap contracts (rounded down). The delta of the
> December 2010 - $90 strike leap is 0.81. An equivalent stock position (ESP)
> would be 40/0.81 or 49 contracts. The current market value of the leaps is
> $40.23/share. The total cost to purchase would be 49*100*40.23 or $197,127.
>
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> Substitute your $500K with my $40K (everything else is similar) and I get
> 3-4 LEAP contracts which seemed to confirm my original figures.
>
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> I said I must be missing something, and it seems I am. I will spend more
> time to fully understand the rationale.
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>
> Peter
>
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