AAPL Options Strategy

  • Posted: 28 March 2012 08:22 PM #61

    Hi everyone, great board, long time reader, first time poster.

    I had a question about the BCS that many of you do here.
    Does anyone know what the max amount of contracts you can use to employ this strategy?

    For example, let’s say you have a 300k account.
    You are long 40ct jan13 650 calls.
    Is it possible to also sell 40ct jan13 700 calls to complete the BCS?

    Obviously, the account doesn’t have millions to actually cover those 4k shares. But wouldn’t the long and short calls cancel each other out if AAPL is well over 700 by jan13?

    TIA for any comments.

         
  • Posted: 28 March 2012 08:40 PM #62

    tradermac - 28 March 2012 11:22 PM

    Hi everyone, great board, long time reader, first time poster.

    I had a question about the BCS that many of you do here.
    Does anyone know what the max amount of contracts you can use to employ this strategy?

    For example, let’s say you have a 300k account.
    You are long 40ct jan13 650 calls.
    Is it possible to also sell 40ct jan13 700 calls to complete the BCS?

    Obviously, the account doesn’t have millions to actually cover those 4k shares. But wouldn’t the long and short calls cancel each other out if AAPL is well over 700 by jan13?

    TIA for any comments.

    Yes , you guarantee for the short ones by your long ones. Exact same stategy as covered calls, except you would be long stocks and short calls. Same number of long against short.

    Btw.. 700 s only 12% from here ..

         
  • Posted: 28 March 2012 08:42 PM #63

    bbbo - 28 March 2012 10:15 PM

    Anybody (still) holding April ITM calls?  Care to share your plans for them?
    My feeling is that with earnings just around the corner, these could keep on moving up and up right very close to expiration. (closer than would normally be the case) and therefore, I’m feelin’ a little risky.  :eg:
    Also: I can’t believe the volume in these things. The 615s traded 12,096 today; the 620s traded 17,010

    I have 10 of the Apr 500s.

    With a bullish view that AAPL will go higher soon, I have a limit order set to sell 3 calls at $132 (when AAPL is around 632) to lock in profits.

    If earnings date happens to be before OE, then I’ll hold on to the remaining 7 with the hope of a next-day pop after earnings.

    If the earnings date is after OE (most likely), then I’ll sell all when AAPL is around 640.

         
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    Posted: 28 March 2012 08:45 PM #64

    terps530 - 28 March 2012 06:18 PM

    Does/has anyone ever used a ratio spread?  For example a 1:2 ratio like buying 1 apr 600 call ($26), selling 2 apr 650 calls (2x$6).

    Net cost is $14 instead of $20 for a regular spread. 
    Risk increased because if Apple is greater than 650, you start to lose from your max profit.  Break even point would be if Apple got to 686, and then you would start losing money after 686.

    However, if you think 650 is a good cap, you can always buy one back near expiration to get back to a regular call spread etc.

    Anyway, I mention it because I was reading something last night about doing 1:2 or 1:3 ratio spreads.  I think it was geared more towards investors with a lot of $$ because technically you are selling a naked call right?  I’m not even sure if my broker would allow a ratio spread because of that.

    I’ve done the opposite—once by accident, and thereafter on purpose! :D—where I am net long.  Right now, I have a 2:1 ratio on JAN’14 750/800 call spreads, where I have twice as many long 750s.

    I’ve also done one real and one paper trade where I’m short the lower strike (1) and long the higher strike (2), but at the time the move didn’t justify the acrobatics.  However, a move like 2012 thus far sure would!  I’ll try another paper trade and report the results. smile


    P.S. YES, in your example you would be selling a naked call…unless you have shares covering that extra short call.

    [ Edited: 28 March 2012 08:48 PM by lovemyipad ]      
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    Posted: 28 March 2012 08:52 PM #65

    jkao - 28 March 2012 07:45 PM

    Right, I mean that max gain is around 100% for BCSes near the current price.

    Correct.  But I have no idea why.  I might have once…in which case it subsequently escaped the sieve that is my brain. :D

         
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    Posted: 28 March 2012 08:57 PM #66

    I put on a lotto spread today.  100 May12 725/735 Bull Call Speads for .65.  I missed it at .55.
    Will be fun to see what it can return.  Maybe it will go ITM!  wink

    Signature

    Jan13 $600 or BUST! LEAP Spread Trial: Bought Jan13 590/600 BCS @1.45 on 9-21-2011
    Max Profit: 689%  Current Price:
    4.50 +210% as of 5-2-2012 - Woohoo! Finally Green!

         
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    Posted: 28 March 2012 08:58 PM #67

    bbbo - 28 March 2012 10:15 PM

    Anybody (still) holding April ITM calls?  Care to share your plans for them?
    My feeling is that with earnings just around the corner, these could keep on moving up and up right very close to expiration. (closer than would normally be the case) and therefore, I’m feelin’ a little risky.  :eg:
    Also: I can’t believe the volume in these things. The 615s traded 12,096 today; the 620s traded 17,010

    bbbo, careful please!!  JD and I were talking about IV today, and he kindly reminded me of this excellent post from AAPLTrader99:

    Earnings and IV

         
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    Posted: 28 March 2012 09:03 PM #68

    Rudyo - 28 March 2012 11:57 PM

    I put on a lotto spread today.  100 May12 725/735 Bull Call Speads for .65.  I missed it at .55.
    Will be fun to see what it can return.  Maybe it will go ITM!  wink

    Good Luck!!  At least you actually bought your lottery spread.  I only did mine on paper.

    I’ve periodically reported it’s progress….paper traded 100 APR 550 calls on 2/2 @ $0.50 ($5000 total).  Today they were up to $675,500.00.  Ah the power of leverage!!!

         
  • Posted: 28 March 2012 09:04 PM #69

    Question for you all options wizzards:

    Got one of these handicapped accounts TFSA RRSP etc where short leggs are not allowed.
    I now what i did , but if you would to pick naked calls for 2014 where would you strike?
    Of course these days we all do well, but i wonder whats the best bang for the buck assuming AAPL at a cool 1k jan 2014?

         
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    Posted: 28 March 2012 09:13 PM #70

    lovemyipad - 28 March 2012 11:58 PM
    bbbo - 28 March 2012 10:15 PM

    Anybody (still) holding April ITM calls?  Care to share your plans for them?
    My feeling is that with earnings just around the corner, these could keep on moving up and up right very close to expiration. (closer than would normally be the case) and therefore, I’m feelin’ a little risky.  :eg:
    Also: I can’t believe the volume in these things. The 615s traded 12,096 today; the 620s traded 17,010

    bbbo, careful please!!  JD and I were talking about IV today, and he kindly reminded me of this excellent post from AAPLTrader99:

    Earnings and IV

    Wow, iPad, thanks for posting this.  So, it seems to be a good Calendar play with the big drop in IV.  Will consider one.  Seems it would be a good play if AAPL also rises the first week of April.

         
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    Posted: 28 March 2012 09:17 PM #71

    IV is one hell of a double-edged sword.  You can never be entirely sure of its effects either to the upside or the downside.  Even with a BCS things can still get weird for days at a time.

    Theta is a pretty much known quantity that you can track day by day.  Vega (IV) is quite another matter.  Typically not that big a deal between earnings, but it has been lately and I’m confident it will continue to be starting sometime around now straight through earnings.

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
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    Posted: 28 March 2012 09:18 PM #72

    mstefa - 29 March 2012 12:04 AM

    Question for you all options wizzards:

    Got one of these handicapped accounts TFSA RRSP etc where short leggs are not allowed.
    I now what i did , but if you would to pick naked calls for 2014 where would you strike?
    Of course these days we all do well, but i wonder whats the best bang for the buck assuming AAPL at a cool 1k jan 2014?

    Not sure about the best bang for the buck—lots of factors go into that equation—but I’m holding JAN’14 750s. smile

         
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    Posted: 28 March 2012 09:21 PM #73

    macZiggy - 29 March 2012 12:03 AM
    Rudyo - 28 March 2012 11:57 PM

    I put on a lotto spread today.  100 May12 725/735 Bull Call Speads for .65.  I missed it at .55.
    Will be fun to see what it can return.  Maybe it will go ITM!  wink

    Good Luck!!  At least you actually bought your lottery spread.  I only did mine on paper.

    I’ve periodically reported it’s progress….paper traded 100 APR 550 calls on 2/2 @ $0.50 ($5000 total).  Today they were up to $675,500.00.  Ah the power of leverage!!!

    You are paper LOADED!!!!! smile

         
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    Posted: 28 March 2012 09:21 PM #74

    Now that I understand at least the leg-in side of the delayed BCS formation equation, having a little real-world trading experience there, you can buy and sell as many bull call spreads, bear put spreads, etc. as you have money in your account.  It’s just a more complicated, higher-commission options strategy with a risk and reward level somewhere in between holding shares and holding unhedged options.

    Legging in and out of vertical spreads or whatever becomes a question of available capital.  Buying and selling vertical spreads intact avoids this issue.  Legging in and out is more advanced, not necessarily ever recommended, and requires you do a lot of homework to understand its capital requirements, the effects on your current trade and trade objectives, what it does to your risk/reward calculation, how much you’re gaining and losing, and on and on…

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
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    Posted: 28 March 2012 09:23 PM #75

    Sweet mercy, I wish I’d made that trade.

    Maybe I’ll set up an all-or-nothing BCS myself (it’s a little late for calls for anything other than side bets IMHO unless AAPL IV lowers somewhat in the next week or so).

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.