Our use of LEAPs1 provides us the ability to purchase the underlying security at a future date in time for a specified price. When uncertainty prevails or prices drop, we find opportunities to provide insurance on stock that we wish to own. This is distinctly different from most uses of these products. Instead of trading for short-term gains, we receive immediate cash in the form of premiums and hold the contracts for the long-term with the desire to purchase the undervalued equity far in the future.
Simply stated, our cost of stock is reduced via the following:
Net Cost of Stock = Commitment Price Paid – Premium Received
Although this provides a long-term advantage, similar to warrants, prices will be volatile in the short-term. An equity price move during an event like Brexit is magnified in our LEAPs contracts. Although we must endure short-term swings, it will ultimately prove advantageous to our portfolio. We continue to hold these contacts as a multiyear tool to purchase equity.
[us_separator]1Long Term Equity Anticipation Securities (LEAPs) exchange traded through the Chicago Board of Exchange provide the holder the right to buy or sell associated equity to their counterparty at a predetermined price in the future.
[us_separator] The above post has been excerpted from a recent letter of Peterson Capital Management.
The performance data presented represents that of Peterson Investment Fund I, LP. This document does not constitute an offer to sell, or a solicitation of an offer to buy membership interests in Peterson Investment Fund I, LP. We will not make such offer or solicitation prior to the delivery of a definitive offering memorandum and other materials relating to the matters herein. Before making an investment decision with respect to the fund, we advise potential investors to carefully read the offering memorandum, the operating agreement, the related subscription documents, and to consult with their tax, legal and financial advisors. Past performance is not necessarily indicative of future results. All information provided herein is for informational purposes only and should not be deemed as a recommendation to buy or sell securities. All investments involve risk including the loss of principal. This transmission is confidential and may not be redistributed without the written consent of Peterson Capital Management, LLC and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Any such offer or solicitation may only be made by means of delivery of an approved confidential offering memorandum. Please contact us if you would like any materials such as our investment presentations, legal documents, or web access. We have compiled all information herein from sources we believe to be reliable but cannot guarantee its accuracy.