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BAC leverage

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ERICOPOLY:

--- Quote from: Hielko on March 15, 2013, 03:51:19 PM ---I disagree completely, and this has nothing to do with 'a traders mentality'.

You might be willing to hold the LEAP till maturity in 2015, but what's the value of the warrants at that point?

--- End quote ---

Who gives a shit, honestly, what the LEAP is worth in two years?

It's value is the non-recourse leverage on an asset at 10% interest rate.

Suppose I instead take out a 10% loan to finance BAC?

What the value of the sunk-cost of my monthly interest payments in 2 years?

It's called, an "interest expense" on balance sheets.  Here, it's prepaid interest.

EDIT:  I meant to say it's "interest expense" on income statements, but it's "prepaid interest" on my fictional balance sheet.  It amortizes at varying rates from time to time based on passage of time and implied volatility, but I'm not a trader -- that doesn't matter to me.  I'm using it for financing the leverage of the asset -- not to make money timing when Black Scholes volatility goes up or down.

Hielko:
But you don't know how much the cost of leverage is for a two year period if you use the warrants, because the costs depends on what happens with the share price, implied volatility, theta decay and all those 'academic things'. So how can you claim the X is cheaper than Y if you don't know the cost of X?

ERICOPOLY:

--- Quote from: Hielko on March 15, 2013, 04:09:52 PM ---But you don't know how much the cost of leverage is for a two year period if you use the warrants, because the costs depends on what happens with the share price, implied volatility, theta decay and all those 'academic things'. So how can you claim the X is cheaper than Y if you don't know the cost of X?

--- End quote ---

Let's stop pretending that we all aren't in this for a rising stock price.

Raise of hands, can anyone tell me what happens to a put option price as the common stock skyrockets?

valueinvesting101:
So what is THE strategy that you went with Eric?
Buying common and LEAPs expiring in 2015 at strike 10 & 12? Did you buy put or you will buy them when they will be cheaper when stock has moved up higher?

May be it is already answered already but I read discussion on this board few times but I have only understood parts of it.

Hielko:

--- Quote from: ERICOPOLY on March 15, 2013, 04:11:19 PM ---
--- Quote from: Hielko on March 15, 2013, 04:09:52 PM ---But you don't know how much the cost of leverage is for a two year period if you use the warrants, because the costs depends on what happens with the share price, implied volatility, theta decay and all those 'academic things'. So how can you claim the X is cheaper than Y if you don't know the cost of X?

--- End quote ---

Let's stop pretending that we all aren't in this for a rising stock price.

Raise of hands, can anyone tell me what happens to a put option price as the common stock skyrockets?

--- End quote ---
I'm not the one who started a huge thread on how X is better than Y... The stock price going up is obviously good news for both leaps and warrants, but doesn't change the fact that this whole thread is mostly nonsense.

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