382 Part Ill: Put Option Strategies 
whether the move is feasible at all, and if it is, whether to use the call substitution 
strategy or the put protection strategy. 
LEAPS INSTEAD OF SHORT STOCK 
Just as in-the-money LEAPS calls may sometimes be a smarter purchase than the 
stock itself, in-the-money puts may sometimes be a better purchase than shorting the 
common stock. Recall that either the put purchase or the short sale of stock is a bear­
ish strategy, generally implemented by someone who expects the stock to decline in 
price. The strategist knows, however, that short stock is a component of many strate­
gies and might reflect other opinions than pure bearishness on the common. In any 
case, an in-the-money put may prove to be a viable substitute for shorting the stock 
itself. The two main advantages that the put owner has are that he has limited risk 
(whereas the short seller of stock has theoretically unlimited risk); and he does not 
have to pay out any dividends on the underlying stock as the short seller would. Also, 
the commissions for buying the put would normally be smaller than those required 
to sell the stock short. 
There is not much in the way of calculating that needs to be done in order to 
make the comparison between buying the in-the-money put and shorting the stock. 
If the time value premium spent is small in comparison \vith the dividend payout that 
is saved, then the put is probably the better choice. 
Professional arbitrageurs and other exchange members, as well as some large 
customers, receive interest on their short sales. For these traders, the put would have 
to be trading with virtually no time premium at all in order for the comparison to 
favor the put purchase over the stock short sale. However, the public customer who 
is going to be shorting stock should be aware of the potential for buying an in-the­
money put instead. 
SPECULATIVE OPTION BUYING WITH LEAPS 
Strategists know that buying calls and puts can have various applications; witness the 
stock substitution strntegies above. However, the most popular reason for buying 
options is for speculative gain. The leverage inherent in owning options and their lim­
ited risk feature make them attractive for this purpose as well. The risk, of course, 
can be 100% of the investment, and time decay works against the option owner as 
well. LEAPS calls and puts fit all of these descriptions; they simply have longer matu­
rities. 
Time decay is the major enemy of the speculative option holder. Purchasing 
LEAPS options instead of the shorter-term equity options generally exposes the