Mace - 04 November 2009 11:13 AM

Thanks.  My plan is to buy LEAPS 11 slightly OTM upon completion of wave 2 i.e. between $122-$178.

Any chance of narrowing that range a bit? And, is it already inevitable that this wave must dip below 178? (maybe I should go over to the EW thread and get caught up).

deagol - 04 November 2009 11:25 AM

Mace - 04 November 2009 11:13 AM

Thanks.  My plan is to buy LEAPS 11 slightly OTM upon completion of wave 2 i.e. between $122-$178.

Any chance of narrowing that range a bit? And, is it already inevitable that this wave must dip below 178? (maybe I should go over to the EW thread and get caught up).

Though is highly probable that AAPL is in wave 2 but is not confirmed because $185.55 has yet to break.  So, we can hope that $185.55 to $208.71 is a wave one (not 1, just a degree-less name), $208.71 to $185.57 is a wave two, currently in wave three.  Latter would be highly probable when AAPL break above $196.81.  ATM, wave 2 is more probable. To answer your question, if $185.55 breaks then sure will hit $178.

deagol - 03 November 2009 08:39 PM

[...]

Shares position remains untouched, but if we go below 175 I might sell some shares to fund a big position in 2011 leaps (although I’m not sure why I not just do it now… anyone know the risk/reward of now vs. waiting for under 175?).

Would you buy a sufficient number of LEAPS such that your delta would be equal to the delta you now hold with your shares?

Oh I think the delta should be quite higher.

At today’s closing prices selling about 18 shares pays for 1 Jan11 $190 contract (shows a .62 delta). Combined delta is .62-.18=.44. In fact I think it’s impossible to sell shares to buy calls and end up with a lower delta.

deagol - 04 November 2009 05:58 PM

Oh I think the delta should be quite higher.

At today’s closing prices selling about 18 shares pays for 1 Jan11 $190 contract (shows a .62 delta). Combined delta is .62-.18=.44. In fact I think it’s impossible to sell shares to buy calls and end up with a lower delta.

Well it is only impossible if we have assumed that 100% of the sale proceeds are to be reinvested.

Given that this is the case, your risk and reward will be much greater with the calls than it is with the shares at either 175 or 190.  Assuming at 190 you were to buy calls that were the same time to expiration and the same intrinsic value as you would at 175, then the difference in risk of going into calls here is what would be lost if the stock goes south vs the opportunity cost if you stay in shares and we go straight up from here.  Likewise with reward.

So in comparing these scenarios, we are into market forecasting.  Something I cannot pretend to be good at.  Having said that, I am hanging onto my shares and waiting for 158-160 to speculate on some calls. If this turns out to be wrong, I will still enjoy profits as the stock rises.

I am a nervous long.

capablanca - 04 November 2009 07:46 PM

I am a nervous long.

A nervous long is a good sign for all - a complacent long would scare me for sure!

capablanca - 04 November 2009 07:46 PM

Well it is only impossible if we have assumed that 100% of the sale proceeds are to be reinvested.

Correct. Sorry if I wasn’t clear about that before.

capablanca - 04 November 2009 07:46 PM

So in comparing these scenarios, we are into market forecasting.

Isn’t there an equivalent option play that could be used to quantify these scenarios? Like, some sort of hedge in which I end up with the same number of shares and LEAPS at same strike and expiration no matter what the stock does, but it costs me a bit in time premiums or whatever. Is it maybe adding the cost of some short-term (Jan10) 190 puts to the current scenario? Or is it rather selling 175 calls in the future scenario? Hmm, no I don’t think it’s that simple… anyway, just wondering if it was possible at all, and I know I tend to get my brain all twisted when thinking about options.