LEAPS Collar
Long-Standing Finance, Inc. (ZYX) closed today at 56.50.You buy 100 shares of ZYX for your
self-directed IRA at the closing price.
Outlook: You plan to draw on the IRA upon your retirement on December 31, 2006. You want to preserve the value of your ZYX investment at little or no cost.
Possible Strategy: LEAPS collar on ZYX.
Buy one January 2007 ZYX LEAPS 55 Put at 9.50.
Sell one January 2007 ZYX LEAPS 65 Call at 9.40.
Total cost is 0.10, or $10.00.
*All values shown below are at the time of expiration.
| Stock Change |
ZYX @ expiration |
ZYX Profit/ (Loss) |
ZYX 55 Put Profit/(Loss) | ZYX 65 Call Profit/(Loss) | Net Profit/(Loss) |
| +23.89% | 70 | $1,350.00 | $(950.00) | $440.00 | $840.00 |
| +15.04% | 65**** | $850.00 | $(950.00) | $940.00 | $840.00 |
| +6.19% | 60 | $350.00 | $(950.00) | $940.00 | $340.00 |
| +0.02% | 56.60* | $10.00 | $(950.00) | $940.00 | $0.00 |
| 0.0% | 56.50** | $0.00 | $(950.00) | $940.00 | $(10.00) |
| - 2.65% | 55*** | $(150.00) | $(950.00) | $940.00 | $(160.00) |
| - 11.50% | 50 | $(650.00) | ($450.00) | $940.00 | $(160.00) |
AT EXPIRATION (01/20/07)
*Break Even: ZYX @ 56.60 (+.01%)
** Unchanged: Loss of $10.00
*** Max. Loss: $160.00 @ ZYX 55 or lower (-2.65%)
**** Max. Gain: $840.00 @ ZYX 65 or higher (+15.04%)
In a nutshell: You pay $10.00 to lock in a value of $55 for ZYX stock until January 2007, with downside risk of only $160.00 while allowing upside potential of $840.00.