Hi Leo,
I have asked myself that question a lot of times and still can only see the benefit of stock ownership if you can get to a zero cost basis.
I owned GS stock and had covered calls which didn't cover the losses.
Now I have to dig myself out of the hole.
Had I owned leaps my losses would have been less.
When GS turns around I will be buying leaps not stock for now on.
Hank
--- In ConservativeOptionS
>
> Looking at Goldman Sachs Black Swan event yesterday persuaded me to compare owning the stock to owning a leap (is Oct considered a leap?).
>
> Let's compare the numbers from 4/14/10:
>
> 100 shares of GS @185.41 = $18,541
> 1 OCT 150 Call @39.70 = $3970
>
>
> Close yesterday 4/16/10
>
> 100 shares of GS @160.70= $16,070
> 1 OCT 150 Call @23.10= $2310
>
>
> Net Losses from drop in GS
> Stock Loss $2,471
> Option Loss $1,660
>
> Now obviously these are apples and oranges and each has their advantages, but I think we should weigh those advantages.
>
> When I buy calls I usually shoot for an 85 which means I do not benefit from a rise in the stock equal to actually owning shares. But the delta increases due to gamma as the stock price increases.
>
> The call has time decay which I usually overcome by selling a current month call against. So where a covered call gives me full profit the short option sold against the leap help pays to maintain the leap (but it still delivers profit as well).
>
> The leap has the advantage of decreasing gamma as stock price falls. So while I begin with an 85 delta gaining 85 cents on every dollar of potential gain if the stock had risen. Gamma causes the delta to fall to 65 so losses become a bit less painful as GS plummets.
>
> Options do not allow you to participate in dividends, but those numbers are calculated into the Black-Scholes models of pricing.
>
> So my question is ...Why own stock? Why put up nearly four times as much money to have more risk and just slightly more reward?
>
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