Wednesday, March 21, 2012

Low Cost Way to Trade $AAPL (with treat)

heres an easy, lower cost way to trade apple instead of buying 100shares for $60000. If you have a long thesis and would like to hold the position for long term. instead:

Buy 1 of the Jan2014 500calls for $162 ($16200)

This call option has a "delta" of .73 which means this option will increas 73cents for every $1 move up in the actual stock. Now add the following:

Sell 1 of the Apr2012 630 calls for $11 ($1100 credit)

Now you have a Diagonal Spread, and it requires no additional margin or buying power. Best situation is that stock closes on Apr opex at 629, you keep the $1100 and gain in value of the 500long call. Then resell another option for May. But what if stock takes off you are thinking.. according to the Trademonster Analyse tab.. stock has to move all the way up to about $800 at Apr opex to lose money since the long 500 call is gaining in value while the 630short call is losing. Flip side is you have $1100 in protection for downside BUT you have until 2014 to keep selling short calls against your long call..legging into a new diagonal every month.. thats lots of earnings reports, lots of Iphone refreshes, lots of cnbc blabber, etc.. But what if it goes down you are thinking...yeah, it could..but i have 2 years to keep doing this...2 years..thats alot of weekly /monthly options

Buy 1 of the Jan2014 500calls for $162 ($16200)
Sell 1 of the Apr2012 630 calls for $11 ($1100 credit)
Total buying power for every one lot = $15100 vs $60000 for 100 shares

(so if i had $60000 i would buy 4 of these diagonals and get $4400 in premium)... 4x the return when using LEAPS vs stock

your treat:

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