AAPL Options Discussion

  • Posted: 09 May 2009 10:10 PM

    A new sticky topic by popular request. smile

    [ Edited: 30 May 2009 03:22 PM by DawnTreader ]      
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    Posted: 10 May 2009 01:06 AM #1

    I would like to kick off an option strategy discussion.

    For alice’s option problem, my best suggestion is to keep LEAPS 11 but sell all the shares.  Wait for the inevitable correction to buy back shares when AAPL is around 20-day EMA or 13-week EMA or when market retest Mar lows.  If miss the bottom, wait for LEAPS 12, buy equivalent number (to shares) of LEAPS and deposit remaining cash in CDs.

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  • Posted: 10 May 2009 06:36 AM #2

    I am currently in London and this mornings press says the Bank of England is going to declare a V shaped recovery. Do not know if this is the view of the EU or Fed but if BOE is correct people are going to have to be nimble, especially option TRADERS (not investors) My personal view is that we are close to a correction in the market. This is a retail driven advance (dumb money) with a few big mutual funds long the S&P’s. I am all in OTM 2011’s and was considering selling 2010’s same strike. I cannot sell my current position because of lack of liquidity in the contract and it means a large tax bill in this current year. By shorting the 2010’s I insure medium term corrections will not erase all my (paper)profits for the year.
    As a fundamentalist selling AAPL stock or derivatives before WWDC or the return of SJ at the end of June seems foolish. Course he could surprise and show up at WWDC. In any case Apple should have some positive press in June.
    Regarding Alice’s problem it is never easy and beware of obvious answers. For me the toughest thing to do is to just sit on my position. And because it is the most painful and frightening thing to do is why I will do just that.

         
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    Posted: 10 May 2009 12:16 PM #3

    SNIPUS,

    I don’t get your suggestion.  Is it:
    a.  Sell OTM calls; or
    b.  Sell shares; or
    c.  Do nothing; or
    d.  No clue.

    Thinking aloud:  Why are everybody making vague statements and refuse to give clear specific implementable suggestion?

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  • Posted: 10 May 2009 12:29 PM #4

    Mace - 10 May 2009 03:16 PM

    SNIPUS,

    I don’t get your suggestion.  Is it:
    a.  Sell OTM calls; or
    b.  Sell shares; or
    c.  Do nothing; or
    d.  No clue.

    Thinking aloud:  Why are everybody making vague statements and refuse to give clear specific implementable suggestion?

    I am all in OTM 2011’s and am going to do nothing but hold. I may feel differently in June/July.

         
  • Posted: 10 May 2009 05:11 PM #5

    Mace - 10 May 2009 04:06 AM

    I would like to kick off an option strategy discussion.

    For alice’s option problem, my best suggestion is to keep LEAPS 11 but sell all the shares.  Wait for the inevitable correction to buy back shares when AAPL is around 20-day EMA or 13-week EMA or when market retest Mar lows.  If miss the bottom, wait for LEAPS 12, buy equivalent number (to shares) of LEAPS and deposit remaining cash in CDs.

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    Mace - Will you please explain why selling all shares is better than selling all LEAPS 11?  It is the Leaps 11 that worries me the most.  Thanks.

         
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    Posted: 10 May 2009 07:46 PM #6

    alice - 10 May 2009 08:11 PM
    Mace - 10 May 2009 04:06 AM

    I would like to kick off an option strategy discussion.

    For alice’s option problem, my best suggestion is to keep LEAPS 11 but sell all the shares.  Wait for the inevitable correction to buy back shares when AAPL is around 20-day EMA or 13-week EMA or when market retest Mar lows.  If miss the bottom, wait for LEAPS 12, buy equivalent number (to shares) of LEAPS and deposit remaining cash in CDs.

    Views?

    Mace - Will you please explain why selling all shares is better than selling all LEAPS 11?  It is the Leaps 11 that worries me the most.  Thanks.

    Less financial resources being diverted with potentially greater gain.  Currently the Jan ‘11, 180C VAAAP, is $12.30. One 100-contract share would be $123.00 which is about the same as one share of Apple. If AAPL gained $10, you would gain $10. WIth a delta of $0.35, that same $10 gain in AAPL would, being simplistic, gain you $35.00. And at this point the 2011 options would not see much time decay. Further, IV is getting to more reasonable levels, which would be benefit options if IV shot up again.
    I suppose the most basic question is your personal outlook for the future. If you see the market recovering than the OTM calls would make sense.  If you are bearish or think the market will be flat for the next 18 months, you may want to hold the stock, (or sell it anyway and get something else. )

    At least these are my thoughts on the topic.  You will need to make your own decisions.  :wink:

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    Posted: 11 May 2009 12:41 AM #7

    Play Ultimate - 10 May 2009 10:46 PM

      Currently the Jan ‘11, 180C VAAAP, is $12.30. One 100-contract share would be $123.00 which is about the same as one share of Apple.

    One VAAAP at $12.30 would be $1230, not $123.00. That makes a difference.

         
  • Posted: 11 May 2009 05:07 AM #8

    CaptainBoom - 11 May 2009 03:41 AM
    Play Ultimate - 10 May 2009 10:46 PM

      Currently the Jan ‘11, 180C VAAAP, is $12.30. One 100-contract share would be $123.00 which is about the same as one share of Apple.

    One VAAAP at $12.30 would be $1230, not $123.00. That makes a difference.

    But not a significant one. It just means ten shares of AAPL are about the same price, so for a $1 price change you make $10 on your ten AAPL shares, and $35 on your one VAAAP.

         
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    Posted: 11 May 2009 09:00 AM #9

    sleepytoo - 11 May 2009 08:07 AM
    CaptainBoom - 11 May 2009 03:41 AM
    Play Ultimate - 10 May 2009 10:46 PM

      Currently the Jan ‘11, 180C VAAAP, is $12.30. One 100-contract share would be $123.00 which is about the same as one share of Apple.

    One VAAAP at $12.30 would be $1230, not $123.00. That makes a difference.

    But not a significant one. It just means ten shares of AAPL are about the same price, so for a $1 price change you make $10 on your ten AAPL shares, and $35 on your one VAAAP.

    Oops. . .I was trying to write this out before running out the door to take my wife and mother-in-law out to dinner. As soon as I got in the car, I realized that I had done the math wrong.  doh!  :dunce:

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  • Posted: 11 May 2009 12:24 PM #10

    Regarding Play Ultimate’s option example using VAAAPs:

    I have found that there are aspects of LEAPs that detract from their supposed advantages. Using this morning’s prices: While the VAAAP that Play cites has a theoretical delta of 0.35, the actual bid-ask prices in the option chain indicate that delta is as low as 0.195 if ones buys at ask and sells at bid, which often happen with the high spreads and low activity of LEAPs. If one is lucky and buys and sells at the middle of the spread, then delta goes up to 0.235—-still far short of the theoretical 0.35.

    Larger changes in AAPL price will improve delta, but not to 0.35—-and these large price changes usually take long enough for time decay to more than offset this improvement.

    My conclusion from trading AAPL LEAPs over several years is that they are very often priced too high for the value they give and for the inherent timing risk—-I seem to make more profit with less agonizing by trading the underlying AAPL. If one is consistently prescient about AAPL price moves, then one can get more leverage and profit with shorter-term options instead of LEAPS and—-if one is not—-then I believe that patient trading in AAPL itself is the better way to go.

         
  • Posted: 11 May 2009 01:45 PM #11

    SNIPUS - 10 May 2009 03:29 PM
    Mace - 10 May 2009 03:16 PM

    SNIPUS,

    I don’t get your suggestion.  Is it:
    a.  Sell OTM calls; or
    b.  Sell shares; or
    c.  Do nothing; or
    d.  No clue.

    Thinking aloud:  Why are everybody making vague statements and refuse to give clear specific implementable suggestion?

    I am all in OTM 2011’s and am going to do nothing but hold. I may feel differently in June/July.

    Once again we are thinking alike.  I am in 2011 $150 calls and plan to sit on them whatever happens over the next 6 months.  If these reach ITM status early I may lock in profits by selling something like 2011 $180 calls, depending on actual premiums.  Is there a better way to lock in some profit?

         
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    Posted: 11 May 2009 01:58 PM #12

    Mace - 10 May 2009 03:16 PM

    SNIPUS,

    I don’t get your suggestion.  Is it:
    a.  Sell OTM calls; or
    b.  Sell shares; or
    c.  Do nothing; or
    d.  No clue.

    Thinking aloud:  Why are everybody making vague statements and refuse to give clear specific implementable suggestion?

    Sell OTM calls about three to six months out that are about 10-15% out of the money. On a pull back, buy ‘em back. If the market screams by and you get assigned then shucks, you didn’t make as much money. The point is that you made money on the sale which satisfies the second rule of trading to always grow the funds you have under management.

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    Posted: 11 May 2009 02:03 PM #13

    Hannibal - 11 May 2009 03:24 PM

    Regarding Play Ultimate’s option example using VAAAPs:

    I have found that there are aspects of LEAPs that detract from their supposed advantages. Using this morning’s prices: While the VAAAP that Play cites has a theoretical delta of 0.35, the actual bid-ask prices in the option chain indicate that delta is as low as 0.195 if ones buys at ask and sells at bid, which often happen with the high spreads and low activity of LEAPs. If one is lucky and buys and sells at the middle of the spread, then delta goes up to 0.235—-still far short of the theoretical 0.35.

    Larger changes in AAPL price will improve delta, but not to 0.35—-and these large price changes usually take long enough for time decay to more than offset this improvement.

    My conclusion from trading AAPL LEAPs over several years is that they are very often priced too high for the value they give and for the inherent timing risk—-I seem to make more profit with less agonizing by trading the underlying AAPL. If one is consistently prescient about AAPL price moves, then one can get more leverage and profit with shorter-term options instead of LEAPS and—-if one is not—-then I believe that patient trading in AAPL itself is the better way to go.

    I’m not sure I follow your logic on delta. Delta is the amount that the value of the option should change based on a $1.00 change in the underlying. It’s essentially the first derivative of price. Gamma is the rate of change of delta, or the second derivative. Delta is not the bid ask spread.

    Here’s a definition from Investopedia.

    Note that as an option gets close to expiration, theta, or loss of time value, will start to play a more important role as well. Especially for near the money options.

         
  • Posted: 11 May 2009 03:09 PM #14

    Zeke - 11 May 2009 04:45 PM
    SNIPUS - 10 May 2009 03:29 PM
    Mace - 10 May 2009 03:16 PM

    SNIPUS,

    I don’t get your suggestion.  Is it:
    a.  Sell OTM calls; or
    b.  Sell shares; or
    c.  Do nothing; or
    d.  No clue.

    Thinking aloud:  Why are everybody making vague statements and refuse to give clear specific implementable suggestion?

    I am all in OTM 2011’s and am going to do nothing but hold. I may feel differently in June/July.

    Once again we are thinking alike.  I am in 2011 $150 calls and plan to sit on them whatever happens over the next 6 months.  If these reach ITM status early I may lock in profits by selling something like 2011 $180 calls, depending on actual premiums.  Is there a better way to lock in some profit?

    Don’t know if it is better but if it is this year you could sell 2010 150’s or higher strikes.

         
  • Posted: 11 May 2009 04:01 PM #15

    SNIPUS - 11 May 2009 06:09 PM
    Zeke - 11 May 2009 04:45 PM
    SNIPUS - 10 May 2009 03:29 PM
    Mace - 10 May 2009 03:16 PM

    SNIPUS,

    I don’t get your suggestion.  Is it:
    a.  Sell OTM calls; or
    b.  Sell shares; or
    c.  Do nothing; or
    d.  No clue.

    Thinking aloud:  Why are everybody making vague statements and refuse to give clear specific implementable suggestion?

    I am all in OTM 2011’s and am going to do nothing but hold. I may feel differently in June/July.

    Once again we are thinking alike.  I am in 2011 $150 calls and plan to sit on them whatever happens over the next 6 months.  If these reach ITM status early I may lock in profits by selling something like 2011 $180 calls, depending on actual premiums.  Is there a better way to lock in some profit?

    Don’t know if it is better but if it is this year you could sell 2010 150’s or higher strikes.

    How about 2010 $180s?  That way if I’m assigned I exercise my 2011 $150s for $30 per share profit, or if the $180s expire worthless I still have my 2011 $150s plus the premium on the expired $180s.