from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

1-800-803-4595

Archive for February, 2012

Interesting AAPL Stock Options Strategy – Week 2

Saturday, February 25th, 2012

Last week I offered a video which showed the actual positions of an AAPL options portfolio designed to gain as much as 100% over the next 4 weeks.  While it probably won’t be quite that good, we might come close.

The first week was encouraging.  We had been hoping that AAPL would stay flat or move slightly higher. It had a great week, moving up by $20.29, or about 4%.

Our little portfolio gained 35%, almost 9 times as much as the stock gained.  Ironically, we would have done better if the stock had not gone up so much.

This week I would like to show the actual trades we made last week to get set up for next week, and our current positions.  I am sending this to you earlier than usual in case you might like to duplicate these positions in your own account on Monday.

Enjoy the videos.

Interesting AAPL Stock Options Strategy – Week 2

A week ago, the original positions were set out in an actual account carried out at Terry’s Tips.  The YouTube link is http://youtu.be/6J9KPuimyXk

It is important to click the lower right-hand corner of the YouTube video to enlarge it to full-screen mode.  Otherwise, you can’t see the numbers.

This week’s video can be seen at http://youtu.be/e0B7_6e_5AE 

Again, switching to full-screen mode is advised.

In this week’s video, I show how we would adjust the portfolio if AAPL were to reverse direction and start going down next week.

Interesting AAPL Stock Options Strategy

Tuesday, February 21st, 2012

I like Apple.  I think the stock will at least hold steady, or might go up over the next month.  If it does, I expect to double my money with an options strategy I have just set up.  Today I would like to share that strategy with you in a short video.  Check it out here - Interesting AAPL Play Using Weekly Options

I hope you will enjoy it.

Interesting AAPL Stock Options Strategy

In spite of the big run-up in the price of AAPL since it announced blow-out earnings that exceeded all expectations, I think the stock has more room to go up.  It is still undervalued by traditional investment measures.  The problem is that people can’t believe that the largest company in the world can continue to grow as fast it has over the last couple of years.

And it keeps doing better than even the highest expectations.

I think it has a good chance of continue going higher.  I expect that the rumors may be right – they will announce the iPad 3 early in March, and maybe a new television system using the cloud.  And maybe they will start paying dividends.  What else do they plan to do with the spare $100 billion they have sitting in cash?

If they start paying a dividend, there are many mutual funds out there who would love to own the stock but are prevented from doing so because their charter allows them to only but dividend-paying stocks.  No matter how small the dividend might be, millions of dollars will pour into the stock once dividends are declared.

My little options strategy should make over 35% a week for the next 4 weeks if the stock holds steady or goes up moderately (actually, if it goes up a little, the weekly gain could be closer to 50%).   Spend a couple of minutes checking it out – Interesting AAPL Play Using Weekly Options

Making Adjustments to the Shoot Strategy

Monday, February 13th, 2012

Greetings!

Last week I shared the actual positions we held in what we call our Shoot Strategy portfolio (which uses AAPL as the underlying).  Last week was a great one for AAPL. The stock rose 7.3%.  Our portfolio gained 22.1% after commissions, or more than 3 times the amount the stock went up.

One of the potential problems of the options portfolio is that the stock goes up too fast.  When that appears to be happening, as it did in Apple last week, adjustments need to be made.  We will talk a little about those adjustments this week.

Terry

Making Adjustments to the Shoot Strategy

First, let’s repeat the table of the actual positions we started with at the beginning of last week:

You can see that all of the short calls (at the 460, 465, and 470 strike prices were out of the money at the beginning of the week (i.e., at higher numbers than the stock price).

Early in the week, the stock started moving higher, and the 460 short call became well in the money, so we needed to make an adjustment.  This is the first move we made:

Buy-To-Close 1 AAPL Feb-12 460 call (AAPL120218C460)Sell-To-Open 1 AAPL Feb-12 470 call (AAPL120218C470) for a debit of $4.84  (buying a vertical)

This trade used up most of the $519 we had in the portfolio.  When the stock continued higher, we needed to adjust once again.  This is the Trade Alert we issued on Tuesday:

“We are in a position where we would make less if the stock goes up than if it stays flat, so we should roll to some higher strikes: 

Buy-To-Close 1 AAPL Feb-12 460 call (AAPL120218C460)
Sell-To-Close 1 AAPL Apr-12 430 call (AAPL120421C430) for a credit of $33.20  (selling a diagonal)
 

Buy-To-Open 1 AAPL Apr-12 470 call (AAPL120421C470)
Sell-To-Open 1 AAPL Feb-12 470 call (AAPL120218C470) for a debit of $13.30  (buying a calendar) 

Buy-To-Open 1 AAPL May-12 475 call (AAPL120519C475)
Sell-To-Open 1 AAPL Feb-12 475 call (AAPL120218C475) for a debit of $17.93  (buying a calendar)”

The first trade generated a large stash of cash (about $3300) which we used to buy two new calendar spreads at the 470 and 475 strike prices.  The stock continued to climb, and we had to adjust again on Wednesday.  This is the Trade Alert we issued on that day:

“Once again we have a short call which is too far in the money:
 
Buy-To-Close 1 AAPL Feb-12 465 call (AAPL120218C465)
Sell-To-Close 1 AAPL Apr-12 455 call (AAPL120421C455) for a credit of $19.55  (selling a diagonal)
 
Buy-To-Open 1 AAPL May-12 480 call (AAPL120519C480)
Sell-To-Open 1 AAPL Feb-12 480 call (AAPL120218C480) for a debit of $19.30  (buying a calendar)”

We sold our deepest in-the-money Apr-12 call as we bought back the lowest-strike Feb-12 short call and used the proceeds to buy a calendar spread (going all the way out to May) at the 480 strike.  The stock continued to move higher, and we had to adjust once again on Thursday.  This is the Trade Alert we issued on that day:

“It is not easy to keep up with the rising stock price: 

Buy-To-Close 1 AAPL Feb-12 470 call (AAPL120218C470)
Sell-To-Close 1 AAPL Apr-12 455 call (AAPL120421C455) for a credit of $23.10  (selling a diagonal)

Buy-To-Close 1 AAPL Feb-12 470 call (AAPL120218C470)
Sell-To-Open 1 AAPL Feb-12 485 call (AAPL120218C485) for a debit of $9.45  (buying a vertical)
 

Buy-To-Close 1 AAPL Feb-12 470 call (AAPL120218C470)
Sell-To-Open 1 AAPL Feb-12 490 call (AAPL120218C490) for a debit of $11.55  (buying a vertical) 

Buy-To-Close 1 AAPL Feb-12 475 call (AAPL120218C475)
Sell-To-Open 1 AAPL Mar-12 495 call (AAPL120317C495) for a debit of $2.05  (selling a diagonal)”

The first trade took off another Apr-12 call and we used the cash to buy two vertical spreads, rolling our short calls to a higher strike.  We did not have enough cash to make a third vertical spread purchase, so we sold a diagonal, trading the Feb-12 475 short call for a Mar-12 495 call.  Again, moving our short calls to higher strikes to keep up with the surging stock.

The stock continued higher, and we issued a second Trade Alert on Thursday:

“We have 3 short calls at the 480 strike that we should buy back: 

Buy-To-Close 1 AAPL Feb-12 480 call (AAPL120218C480)
Sell-To-Close 1 AAPL Apr-12 460 call (AAPL120421C460) for a credit of $27.00  (selling a diagonal) 

Buy-To-Close 2 AAPL Mar-12 480 calls (AAPL120317C480)
Sell-To-Open 2 AAPL Mar-12 500 calls (AAPL120317C500) for a debit of $9.10  (buying a vertical)”

The first trade was designed to generate sufficient cash to be able to buy two vertical spreads, rolling up the short Mar-12 480 calls to the 500 strike.  And the stock continued higher, necessitating the third Trade Alert for Thursday:

“We have enough cash to roll one in-the-money short call higher:

Buy-To-Close 1 AAPL Feb-12 485 call (AAPL120218C485)
Sell-To-Close 1 AAPL Feb-12 500 call (AAPL120218C500) for a debit of $8.10  (buying a vertical)”

Admittedly, there is a lot more work involved with adjusting the option portfolio than there is just owning the stock.  That is why most of our subscribers who mirror this and our other 7 portfolios sign up for the Auto-Trade program at thinkorswim and have all the trades made automatically for them (there is no charge for this service at thinkorswim other than the commissions, which are also only $1.25 per contract for Terry’s Tips subscribers).

Was it worth all this effort?  It was a magnificent week for AAPL owners.  The stock soared 7.3%.  Lots of smiling faces all around.  Meanwhile, our options portfolio gained 22.1% after commissions, or more than 3 times the gain made by the owners of the stock.  At the close Friday, our portfolio had grown from $12,141 to $14,829 in a single week.  Since we started this portfolio with $5000 some 20 months ago (we withdrew $2000 along the way), AAPL has gained 85% while our portfolio has done 3.7 times as well, gaining 317%.

We think this extraordinary better performance is worth the extra effort we have to put in. Investors who owned the stock over this time period would have seen their $5000 grow to $9250 while our options portfolio has grown to $16,829.  Stock owners would have gained $4250 while we gained $11,829.

This may sound confusing, or maybe even too good to be true, but Terry’s Tips Insiders are generally not confused, and they know full well from experience that these results are real.   We feel that we have definitively proved that an options portfolio can significantly outperform the outright purchase of stock if you pick a stock that goes up.

Actually, we are a little confused why anyone who really believes in a particular stock would buy shares in it rather than setting up an options portfolio like this one.  Do you understand why?  Other than it taking a little more work?  Surely, learning a little about options is something that could pay off every year for the rest of your life.  Why not start off right now by clicking here?  
_ _ _
Any questions?   I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts.

You can see every trade made in 8 actual option portfolios conducted at Terry’s Tips (including William Tell) and learn all about the wonderful world of options by subscribing here.   Why wait any longer to make this important investment in yourself? 

I look forward to having you on board, and to prospering with you.

Terry

Why Owning Options Beats Owning Stock

Monday, February 6th, 2012

Two weeks ago, Apple announced blow-out earnings that pleased just about everyone who follows the stock.  Since that time, AAPL has soared by 9.2%.  Owners of the stock are celebrating.

Meanwhile, the actual options portfolio we carry out at Terry’s Tips increased in value by 42.5% over this same time period.  Options outperformed the stock by more than 4 times.

Today I will share with you the actual option positions we hold in this portfolio, and show the potential gains (or losses) that lie ahead.  This is an important report that I hope you will read carefully

Why Owning Options Beats Owning Stock

In April, 2010, we set up a $5000 portfolio to demonstrate that a well-designed options portfolio could substantially outperform the outright purchase of stock.  We selected AAPL as the underlying, a company we thought had a good future.

We never imagined that future would be quite as spectacular as it has been so far.  The stock has skyrocketed by 72% since then.  Meanwhile, our options portfolio has gone up by 263%.  Our subscribers who mirrored our portfolio from the very beginning have gained over 3.5 times as much as they would have if they had merely purchased shares of AAPL.

We withdrew $3000 of the original $5000 so new subscribers could mirror the portfolio with a smaller investment.  The original investment, now $2000, as grown to its present value of $12,141 in 21 months.  Not bad by any standards, if we do say so ourselves.

How did we do it?   Quite simply, we bought call options with a few months of remaining life and sold call options with only one month of remaining life against these positions. The shorter-term calls we sold to someone else decay at a faster rate than the longer-term calls that we own.  This gives us a major advantage over anyone who has just gone out and bought shares of stock.

In options terminology, we created a portfolio that maximized net delta (the equivalent number of shares of stock we own) as long as there was positive theta (which means that the portfolio would make a small gain every day that the stock remained absolutely flat).

Here are the actual positions of this report from our weekly report sent to paying subscribers:

If you spent $12,141 (the portfolio value) to buy stock, you could purchase 26 shares.  The net delta of this portfolio (117) means that we own the equivalent of 117 shares, or over 4 times as many as the stock owners control.  Meanwhile, theta ($32) means that we are collecting a sort of dividend of $32 every day that the stock remains flat.  We don’t actually get a check for that amount, but that is how much the portfolio should gain from the different decay rates of the long and short options in the portfolio.

Here is the risk profile graph which shows the gains (or losses) that this portfolio should experience when the current short options (Feb-12) expire on February 17, 2012 at the various possible stock prices.  (Note: If the stock moves sharply from its present level, we would make adjustments to the portfolio that would shift the curve in the direction the stock had moved.)

The graph shows that the portfolio should gain over 15% in two weeks if the stock remains absolutely flat or goes up by about $10.  Surely, this is a better place to be compared to what the stockholders have.  If the stock stays flat, they will not make anything.

If the stock falls about $5 in two weeks, the owners of stock would lose that amount while the portfolio should break even. If the stock falls about $10 in two weeks, the options portfolio would do just about the same as the owners of stock would do.  If it falls more than $10, the options portfolio would suffer a greater loss than the stock would, but we would have made an adjustment to reduce or eliminate that possible loss (by rolling down short calls to lower strike prices).

This may sound confusing, or maybe even too good to be true, but Terry’s Tips Insiders are generally not confused, and they know full well from experience that these results are real.   We feel that we have definitively proved that an options portfolio can significantly outperform the outright purchase of stock if you pick a stock that goes up.

Actually, we are a little confused why anyone who really believes in a particular stock would buy shares in it rather than setting up an options portfolio like this one.  Do you understand why?  Other than it taking a little more work?  Surely, learning a little about options is something that could pay off every year for the rest of your life.  Why not start off right now by clicking here?

Making 36%

Making 36% — A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins