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+380 Part Ill: Put Option Strategies 
+Using Margin. The same prospective initial purchaser of common stock might 
+have been contemplating the purchase of the stock on margin. If he used the LEAPS 
+instead, he could save the margin interest. Of course, he wouldn't have as much 
+money to put in the bank, but he should also compare his costs against those of buy­
+ing the LEAPS call instead. 
+Example: As before, XYZ is selling at 50; there are 1-year LEAPS with a striking 
+price of 40 that sell for $12; XYZ pays an annual dividend of $0.50; and short-term 
+interest rates are 5%. Furthermore, assume the margin rate is 8% on borrowed debit 
+balances. 
+First, calculate the difference in prospective investments: 
+Cost of buying the stock: 
+$5,000 + $25 commission: 
+Amount borrowed (50%) 
+Equity required 
+Cost of buying LEAPS: 
+$1,200 + $15 commission: 
+Difference (available to be placed in bank account) 
+$5,025 
+-2,512 
+$2,513 
+$1,215 
+$1,298 
+Now the costs and opportunities can be compared, if it is assumed that he buys 
+the LEAPS: 
+Costs: 
+Time value premium 
+Dividend loss 
+Savings: 
+Interest on $1,298 at 5% 
+Margin interest on $2,512 debit balance at 8% for one year 
+Net Savings: 
+-$200 
+- 50 
++$ 65 
++ 201 
++$ 16 
+For the prospective margin buyer, there is a real savings in this example. The 
+fact that he does not have to pay the margin interest on his debit balance makes the 
+purchase of the LEAPS call a cost-saving alternative. Finally, it should be noted that 
+current margin rules allow one to purchase a LEAPS option on margin. That can be 
+accounted for in the above calculations as well; merely reduce the investment 
+required and increase the margin charges on the debit balance.