Thursday, May 31, 2012

my thesis to enter Diagonals $AAPL

here is what i use for a thought process to enter diagonals.. essentially the same reasons you would buy 100 shares for a long term hold. remember Lenny Dykstra..his strategy of buying a DITM call a few months out with a high delta and selling after getting a one point up move? im probably in the minority, but i like that thought process..except the sell after a dollar move part. You take long position for a lot less capital and give yourself plenty of time to have it work for you. Modifying this a bit to what i do:

1. I go as far out as practical vs what im willing so now i would only be entering into 2014 Leaps...2015Leaps come on the boards in september i think..i want the maximum amout of time for the leaps to work for me...its not a short term Doc J style fast trade
2. Related to #1 is that my thesis is the stock will make a grind higher over the course of the 1-2years of holding the other words im assuming that stock will work its way higher..for me this strategy is not for those sideways moving stocks that are at 45 in january and 48 in december with a yearly high of 50 and low of 40. thats just me.
3. My goal because i expect upward movment of stock(Leap) is that i want short call to expire at max profit..therefore i will sell calls out of the money. goal is to capture that monthly premium.
4. related to #3 is because i am holding the leap for duration i dont need to sell in the money short calls for more "protection". i would prefer not to have to roll an ITM short call up to another ITM short call the next month. thats just ignoring upcoming earnings..if i had a DITM Leap on AAPL i would look at selling a July 600 or 605 short call for $17+ vs selling at july 570 for $31.. sure the 570call gives me more downside protection..but again, my thesis is upside, im entering / holding the leap because i expect an up entering for an up move im not entering to try to lose less money from the get go. if that was the case id stay in cash if my thesis was bearish... if it pins at 605, like i said id rather not have to roll an ITM call to ANOTHER ITM call the next month.. i want all time value...thats just me.

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