An OK Start for Long-Term Stock Options

Long-term stock options, which made their debut Oct. 5 on the American Stock Exchange and Chicago Board Options Exchange, appear to be taking hold.

The number of issues has increased steadily, surpassing 6,000.

Observers say that is a respectable showing, given lack of enthusiasm right now for just about anything associated with stocks.

“It’s very hard to persuade people to enter the stock market these days, let alone the options market,” says Harrison Roth, an options specialist at Cowen & Co.

In Chicago, the new options are known as LEAPS--long-term equity anticipation securities.

The instruments are closely related to the short-term options on individual stocks that have been bought and sold on Wall Street for decades in two basic forms: Calls, which give their owners the right to buy a specified stock at a set price within a stated time period, and puts, which carry the right to sell the stock under similar terms.

Puts and calls usually have lives of nine months or less. Long-term options can run up to two years.

That can represent a big difference to speculators. They might, for instance, feel more confident staking their money on the chance of a market recovery by mid-1992 than by next spring or summer.

But the extra time comes at a price. Last Thursday, for example, when the stock price of Merck & Co. stood at $81.87, a call option to buy 100 shares at $95 between now and January went for $50, excluding commissions.

LEAPS at that price, not due to expire until July of 1992, traded at $687.50, reflecting the much higher chance that Merck stock will climb above $95 in the next 15 months than within 90 days.

Roth says investors who don’t have the time to commit to short-term options trading may have a better chance at operating successfully in the long-term arena.

“You still have to keep track of your investment,” he advises, “but you may not need to monitor it every day, hour by hour.”