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+Chapter 25: LEAPS 381 
+In summary, a prospective purchaser of common stock may often find that if 
+there is an in-the-money option available, the purchase of that option is more attrac­
+tive than buying the common stock itself. If he were planning to buy on margin, it is 
+even more likely that the LEAPS purchase will be attractive. The main drawback is 
+that he will not participate if cash dividends are increased or a special dividend is 
+declared. Read on, however, because the next strategy may be better than the one 
+above. 
+PROTECTING EXISTING STOCK HOLDINGS WITH LEAPS PUTS 
+What was accomplished in the substitution strategy previously discussed? The stock 
+owner paid some cost ($102 in the actual example) in order to limit the risk of his 
+stock ownership to a price of 39½. What if he had bought a LEAPS put instead? 
+Forgetting the price of the put for a moment, concentrate on what the strategy would 
+accomplish. He would be protected from a large loss on the downside since he owns 
+the put, and he could participate in upside appreciation since he still owns the stock. 
+Isn't this what the substitution strategy was trying to accomplish? Yes, it is. In this 
+strategy, only one commission is paid- that being on a fairly cheap out-of-the-money 
+LEAPS put - and there is no risk of losing out on dividend increases or special divi­
+dends. 
+The comparison between substituting a call or buying a put is a relatively sim­
+ple one. First, do the calculations as they were performed in the initial example 
+above. That example showed that the stockholder's cost would be $102 to substitute 
+the LEAPS call for the stock, and such a substitution would protect him at a price of 
+39½. In effect, he is paying $152 for a LEAPS put with a strike of 40- the $102 cost 
+plus the difference between 40 and the 39½ protection price. Now, if an XYZ 1-year 
+LEAPS put with strike 40 were available at 1 ½, he could accomplish everything he 
+had initially wanted merely by buying the put. 
+Moreover, he would save commissions and still be in a position to participate 
+in increased cash dividends. These additional benefits should make the put worth 
+even more to the stockholder, so that he might pay even slightly more than 1 ½ for 
+the put. If the LEAPS put were available at this price, it would clearly be the bet­
+ter choice and should be bought instead of substituting the LEAPS call for the com­
+mon stock. 
+Thus, any stockholder who is thinking of protecting his position can do it in one 
+of two ways: Sell the stock and substitute a call, or continue to hold his stock and buy 
+a put to protect it. LEAPS calls and puts are amenable to this strategy. Because of 
+the LEAPS' long-term nature, one does not have to keep reestablishing his position 
+and pay numerous commissions, as he would with short-term options. The stock­
+holder should perform the simple calculations as shown above in order to decide