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Thread: February AAPL Trade 14.2% ROI

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    God/dess britneyireland's Avatar
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    Default February AAPL Trade 14.2% ROI

    I'm 2 for 2 so far. Judging from the comments and the pms, I'll post a trade a week

    AAPL February 110 Bear Call Spread

    Buy the Feb 115 Call $1.25
    Sell the Feb 110 Call $1.87
    Net Credit of $0.62
    So for every $438 I risk, I can make $62 That is a 14.2% ROI if the options expire worthless on the 3rd Friday of February


    The Trade: To sell the February $110.00 Calls and then buy the February $115.00 Calls. As long as the stock closes below $110.00 on the February expirations day, both options will expire for a profit. If the stock climbs above resistance and then looks like it will close above $110.00 we will need to buy to close the February $110.00 Calls and sell to close the February $115.00 Calls.

    Technicals:
    The stock has a 52-week high of $192.24 set during the month of May and it has 52-week low of $79.14 set during the month of November. For the last few months, prices have moved into a prolonged downward trend. More recently, the stock has bump up against resistance at the down sloping trendline and has just rolled over back below its 30-dma. The stock trades in the computer hardware industry, which is trading near its yearly low prices and institutional interest is very low. The MACD’s are flat at this time, however, the Stochastics have turned down into a new sell signal.


    AAPL – Apple, Inc.
    Apple, Inc. designs, manufactures, and sells personal computers, portable digital music players, and mobile communication devices, as well as related software, services, peripherals, and networking solutions worldwide. The company’s products include desktop and notebook computers, server and storage products, and related devices and peripherals; Mac OS X operating system; and iLife, a suite of software for creation and management of digital photography, music, movies, DVDs, and Web site. In addition, it provides music products and services comprising iPod, portable digital music players and related accessories; online music services, third-party music, audio books, music videos, short films, television shows, movies, podcasts, and iPod games through its iTunes stores; and portable and desktop speaker systems, headphones, car radio solutions, voice recorders, cables and docks, power supplies and chargers, and carrying cases and armbands. Further, the company sells peripheral products, including printers, storage devices, computer memory, digital video, and still cameras, as well as various other computing products and supplies. Additionally, Apple, Inc. offers various software products and computer technologies comprising Mac OS X operating system software; server software and related solutions; professional application software; and consumer, education, and business oriented application software. The company also provides Internet software and services comprising Safari, a web browser; QuickTime, a multimedia software; Mac, a suite of Internet services. In addition, it offers wireless connectivity and networking services. As of June 18, 2008, the company had 215 retail stores. Apple, Inc. was founded in 1976. It was formerly known as Apple Computer, Inc. and changed its name to Apple, Inc. in January 2007. The company is headquartered in Cupertino, California.
    Rebecca Avalon







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    God/dess britneyireland's Avatar
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    Default Re: February AAPL Trade 14.2% ROI

    Update:

    AAPL stock took a dive.


    As always, I have two options.

    1. I can buy back the spread for $19 per contract. That means I realized a 69% of my maximum gain. In other words, The most I could have possibly made on this trade is $62. I have made $43 so far.

    2. Do nothing, wait four weeks and let the spread expire worthless to achieve the maximum gain and avoid paying commissions to close out the trade.

    So, it come down to: "Do I want to wait 4 weeks to make $19"

    me personally, no. I'll close this trade out for an overall 9% ROI in 6 days
    Rebecca Avalon







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    Default Re: February AAPL Trade 14.2% ROI

    I'm curious - do you cross spreads on the screen to trade in and out of your call spreads? How do you figure you're trading near fair value? Do you worry about things other than delta risk?
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    God/dess britneyireland's Avatar
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    Default Re: February AAPL Trade 14.2% ROI

    Quote Originally Posted by person View Post
    I'm curious - do you cross spreads on the screen to trade in and out of your call spreads?
    I have never heard of the term "cross spread" In a trending market I will enter diagonal spreads where I buy a long term option to hold as the market trends, and then sell short term options against it to collect monthly premium. The term for this is called legging into and out of a spread. It is the same concept as a covered call, but without the cost of buying the underlying stock.

    When I enter short term credit spreads I simply look at support and resistance. Then I sell a high probability credit spread above resistance or below support (depending on the overall trend of the market)

    I don't take any fundamentals into consideration. Hence, I don't even know what the fair value of aapl stock is, I just know that it is in a weak industry group (meaning that technology is not the hot sector that institutional investors are gobbling up) in a sideways to down trending market.

    Using that information, I chose an out of the money bear call spread to capitalize on theta. I like credit spreads because they are profitable even if the stock moves completely against you, but remains within your strikes. So even if aapl shot all the way up to 109.99 I'd still acheive my max gain.
    Rebecca Avalon







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    Default Re: February AAPL Trade 14.2% ROI

    Quote Originally Posted by britneyireland View Post
    I have never heard of the term "cross spread" ...
    I don't take any fundamentals into consideration. Hence, I don't even know what the fair value of aapl stock is
    I'm talking about knowing what price your should be doing the options trades at. The bid/ask spread is a fairly significant factor when doing the trade, so if you're buying do you hit the offer, and hit the bid when selling? If so, you'll be taking a signifigant hit right there. And even for ETOs, they might be trading out of line with what you should be paying for them. So you could do a bad trade getting into your options position, and a bad trade getting out, if you're not careful.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    God/dess britneyireland's Avatar
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    Default Re: February AAPL Trade 14.2% ROI

    I don't buy/sell the options one at a time. I enter the spread trade simultaneously. In fact, I don't even look at the individual options' prices, I look at the overall credit of the fill versus the maximum loss.

    My on my broker's trade platform(www.thinkorswim.com) it shows me the range between the natural price (the worst fill scenario) and the limit price (the best fill scenario) I always enter at the limit price for the best fill.
    Rebecca Avalon







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    Default Re: February AAPL Trade 14.2% ROI

    Ah okay So pretty much you need to trust that the prices quoted by your brokers are decent. Since you don't always let your options expire, do you worry about things that affect the worth of your options, like dividends, interest rates, stock-issues/capital-raising, plain old supply and demand etc? (That's what I spend much of my day worrying about)

    I'm just wondering because I have never traded options as a personal investor so don't have much insight from that perspective.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    God/dess britneyireland's Avatar
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    Default Re: February AAPL Trade 14.2% ROI

    Option prices are affected more by Volatility and Theta than they are by the underlying stock price. So when the VIX is high, I'm an option seller, doing credit spreads and selling naked puts, because the premium in the options will be sucked out as soon as that VIX spike recedes.

    I don't buy call options very often because Volatility and ALWAYS works against you unless you buy very deep in the money with a delta of .9
    Rebecca Avalon







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