LEAPS as financing tool.

[Traveler]

Go easy on me, this is a rookie question. I'm wanting to use LEAPS to get levered exposure to a stock in an account that can't have margin.

Asset A trades at 35% implied vol. Do I buy options of sufficient delta to get my target exposure, or do I lever asset B which has no dividend and trades at 13% implied vol and then purchase Asset A in the underlying with the cash freed up. It would seem to me that the second option would be cheaper overall.

 

[sonoma]

Quote from Traveler:

Go easy on me, this is a rookie question. I'm wanting to use LEAPS to get levered exposure to a stock in an account that can't have margin.

Asset A trades at 35% implied vol. Do I buy options of sufficient delta to get my target exposure, or do I lever asset B which has no dividend and trades at 13% implied vol and then purchase Asset A in the underlying with the cash freed up. It would seem to me that the second option would be cheaper overall.

Can you give us the exact trade you're considering? I can construct several scenarios with the trades you propose.

 

[Traveler]

Holding BRK. Want 100 deltas of AAPL and don't want to reduce my exposure to BRK.

 

[marcoPolo21]

Quote from Traveler:
Holding BRK. Want 100 deltas of AAPL and don't want to reduce my exposure to BRK.

don't you Have to have a Margin account, to buy or sell Options?

marc

 

[Traveler]

No. Not for long options.

 

[Traveler]

Answered my own question. Options to express 100 deltas of BRK B are much cheaper than the equivalent dollar amount of AAPL due to the difference in vol.