Call Option Opportunities: a Spring gift from Apple?

  • Posted: 28 April 2010 09:34 AM

    Bought a bunch of Jan ‘11 260s yesterday when AAPL had dropped by $8.00. Seemed like a gift. If the stock dives another $8 or $10 I’ll repaet the process with 250s.

    I usually buy OTMs when I’m doing LEAPS instead of the slightly ITMs I got yesterday.  The interesting thing was that as I went through the calculations—-for a fixed investment amount—-the 270s through the 300s offered only slightly more leverage in return for significantly more risk of both time decay and shortfall in intrinsic value. That was key to pushing me towards ITM calls. (I realize that Jan ‘11s may not qualify anymore as LEAPS in the eyes of some, but I often find myself using that term for a roughly 9-month option that was recently a LEAPS)

    I’d be interested in how other AFBers feel about ITM vs. OTM for farther-out calls.

         
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    Posted: 28 April 2010 10:15 AM #1

    I’ve always bought ITM or nearly at the money when buying leap calls. I look at them as a stock substitute. Then I sell OTM calls about a month out when the underlying looks extended, forming a diagonal calendar.

    If buying vertical spreads, you get more leverage (profit to loss ratio) the more OTM you get, but the chance of expiring worthless is much greater.

    I’m debating the same thing right now, to buy Jan 12 ATM or say, 310/320 bull call spreads. I’m waiting for a pullback to around the 20 day and the gap from earnings before backing up the truck again.

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    Posted: 28 April 2010 10:43 AM #2

    If you think AAPL will be at $350-$400 by this time next year, then leaps are the best place to put your money.

    Here’s a trade similar to what I’m still looking at, but instead of october, I’m looking at Jan ‘12s.

    http://www.onn.tv/trading-ideas/apple-nasdaq-aapl-risk-reversal/

         
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    Posted: 28 April 2010 10:59 AM #3

    NatasRevol - 28 April 2010 01:43 PM

    If you think AAPL will be at $350-$400 by this time next year, then leaps are the best place to put your money.

    Here’s a trade similar to what I’m still looking at, but instead of october, I’m looking at Jan ‘12s.

    http://www.onn.tv/trading-ideas/apple-nasdaq-aapl-risk-reversal/

    I’d be cautious of selling a, for all intents, naked 230 put. Selling a put spread could still give you a credit without the unlimited risk.

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    Posted: 28 April 2010 12:06 PM #4

    What % dropoff over the past few days ?  It’s about 4.5 %.  (258/270 etc etc)  As Apple goes, this is a modest pullback.

    Traders who watch the boards will benefit.  Long-term investors can go back to mowing the lawn.

         
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    Posted: 28 April 2010 01:44 PM #5

    stevereel - 28 April 2010 01:59 PM
    NatasRevol - 28 April 2010 01:43 PM

    If you think AAPL will be at $350-$400 by this time next year, then leaps are the best place to put your money.

    Here’s a trade similar to what I’m still looking at, but instead of october, I’m looking at Jan ‘12s.

    http://www.onn.tv/trading-ideas/apple-nasdaq-aapl-risk-reversal/

    I’d be cautious of selling a, for all intents, naked 230 put. Selling a put spread could still give you a credit without the unlimited risk.

    Agree.


    NatasRevol,

    This website misrepresents the position.  The max loss is $23,000+contract+commissions.  I wonder why the webiste didn’t mention the margin requirement.  Usually is 50% of the strike price i.e. you’ve to have cash or shares amounting to $11,500 in the account to open this position.

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    Posted: 28 April 2010 01:57 PM #6

    Mace - 28 April 2010 04:44 PM
    NatasRevol - 28 April 2010 01:43 PM

    If you think AAPL will be at $350-$400 by this time next year, then leaps are the best place to put your money.

    Here’s a trade similar to what I’m still looking at, but instead of october, I’m looking at Jan ‘12s.

    http://www.onn.tv/trading-ideas/apple-nasdaq-aapl-risk-reversal/

     


    NatasRevol,

    This website misrepresents the position.  The max loss is $23,000+contract+commissions.  I wonder why the webiste didn’t mention the margin requirement.  Usually is 50% of the strike price i.e. you’ve to have cash or shares amounting to $11,500 in the account to open this position.

    You’re right that they misrepresent the risk.  It’s about $23k, but only if the stock goes to zero. I think they meant to say that you start to lose money below $230.  And that’s not the cost of the trade.  The costs would be (-590+1125).  If margin requirements are 50%, then you should only need ~$565.

    Frankly, I like the Jan ‘12 leap version of a similar trade (buy 360 call/sell 200 put) - maybe a little more risk, but a lot more bang for your buck and a much better probability of being ITM near expiration - if the AFB experts are remotely close to their 12 month forecasts.

         
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    Posted: 28 April 2010 02:28 PM #7

    NatasRevol,

    Refer to this calculator for computing margin requirement.  It works out to be $3,400 if margin requirement is 20%. 

    Some relevant info:
    The margin requirements vary, but for most stocks that you want to sell put options for, the margin requirement is: (20% of strike price + price of option minus the amount it is out of the money) OR (10% of the strike price + price of the option). You also have to get your broker to upgrade your account to a Level 3 options trading account.

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    Posted: 29 April 2010 11:42 AM #8

    The margin requirements were even more onerous than that.

    Trying to buy one Jan 12 call @400/sell one put Jan 12 @200 this morning.

    Costs were about +$1500/-$1500.  Margin requirements (for TD Ameritrade) just to sell the put short: $10,000 min.

    Guess I’ll have to wait until my Oct options go up a little more.