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InvenSense, Inc. Message Board

  • lexpress56 lexpress56 Jul 1, 2014 3:04 PM Flag

    LEAP option premiums are sky high

    I am a big proponent of using relatively conservative bull call spreads to enhance your overall returns, so I am constantly looking at various spreads and their related option premiums and, I must say, I have not seen such optimistic option premiums in a long time. Realize the January 2016 LEAP options are now being sold (great for capturing LTCG tax treatment vs the shorter term plays) and the premiums are simply sky high, which I certainly hope is an accurate reflection of INVN's potential. Right now, the $30 strike is selling for more than $3.50, so buyers of those calls need the PPS go up over $33.50 in the next 18 months to make a penny of return. I think I am as optimistic as the next guy, but that is an aggressive bet.

    The flip side of the high premium story is the benefit associated with selling the premiums. For those feeling strongly that INVN will be moving steadily upward and are looking for a trade to boost their returns, bull call spreads might be worthy of consideration since you reduce risk by selling the higher leg. For example, I purchased another INVN spread yesterday between the $22 and $30 strike prices (Jan 2016) for $2.60 -- a trade that will triple my money if INVN hits $30 in 18 more months ($8 / $2.60) and produce a nice little bump to my overall return if it makes. A 50 contract spread cost $13,200 and maxes out at $40,000 if the stock goes up just 7 points over the next 18 months. Just an alternative idea for those looking to add to their LT share holdings. GLTALs, Lex

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