Table: Buying Calls
Cisco Systems is trading at $16, and you think the stock will be above $20 within the next 14 months. You can buy the stock outright. Or for $5.10 you can buy a LEAPs call option that entitles you to purchase Cisco at $15 by Jan. 18, 2003. (Each option contract covers 100 shares, so a $5.10 premium requires an outlay of $510.)
STOCK PURCHASE CALL PURCHASE
COST (100 SHARES) $1,600 $510
STOCK GOES TO $25 $900 profit $490 profit
% GAIN 56.3% 96%
STOCK GOES TO $10 $600 loss $510 loss
% LOSS 37.5% 100%
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