from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

1-800-803-4595

Using Options as an Alternative to Buying Stock

Apple (AAPL) announced blow-out earnings last week, up double from a year earlier. Wouldn’t you be happy if you owned some of the stock? You would have picked up a nice gain of 7.8% last week. Some people would be happy with that kind of gain for a whole year in this current market.

If you were a Terry’s Tips subscriber, and followed our actual options portfolio using AAPL, you would have been even happier. Your investment would have gained 27.2% last week, more than three times as much as the stock went up. (I personally own 6 units of this portfolio, and gained enough last week to pay for a semester of college for one of my grandchildren.)

Today I will explain a little about this portfolio which uses stock options as a proxy for owning stock in AAPL (or any company of your choosing as long as options are traded on that company).

Using Options as an Alternative to Buying Stock 

At Terry’s Tips, we do not advise buying stock in companies. We don’t think we’re smart enough to pick the big winners. Instead, we make the assumption that we have no idea which way the market is headed, and trade options on the market in general (the S&P 500 tracking stock – SPY).

But we know that people love to pick stocks. So we have devised a demonstration option portfolio to show how you can make several times as much money with options than you could by just buying shares of the company’s stock. We selected AAPL as the underlying stock for this portfolio.

We call this strategy the Shoot Strategy (as in Shoot for the Stars). One neat thing about this strategy is that it makes money even if the stock stays absolutely flat. It doesn’t make a lot of money if the stock stays flat, but anything at all is better than the return you get from owning the stock (unless it pays a dividend, of course).

The Shoot Strategy consists of buying longer-term call options (sometimes called LEAPS) and also selling short-term calls against these long calls. The short calls are at higher strike prices than the long calls we own. Rather than maximizing the short-term time premium that we collect from selling the calls, we sell just enough to slightly more than cover the premium decay that will take place in the longer term calls we own (all options decline in value over time if the stock stays flat, but the short-term calls we have sold to someone else decline at a faster rate than the longer-term calls that we own).

Here is the risk profile graph for our current AAPL demonstration portfolio (we call it the William Tell) for an $8700 unit as of July 22nd when the stock closed at $391.49. The graph shows how much will be gained or loss at the August 19, 2011 expiration of the August calls that we have sold (at the various possible prices of AAPL on that date).

You can see that if the stock remains absolutely flat, the portfolio should gain $1517.80 (about 17%) in a single month (admittedly, that is unusually high for this portfolio, and we will probably make a trade next week which will cause a lower gain at a flat stock price and higher gains if the stock moves higher.

If the stock does move higher by $10 or $20 over the next month, the portfolio should gain over 20%.  The stock can fall as much as $10 before a loss will result (owners of the stock lose money even if it falls by a single dollar).   

We have written a detailed report on how the actual William Tell portfolio gained over 100% in 2010-11 while the stock rose only 25%.  You will learn how you can use the Shoot Strategy on any other stock of your choosing as well.  You can get this special report free when you subscribe to the Terry’s Tips service for a price which is less than a dinner for two at a decent restaurant – only $79.95 for the whole enchilada, including:

1)    My 72-page White Paper which explains my favorite option strategies in detail, including Trading Rules for each, and 20 companies to use with the “Lazy Way” Strategy, (which guarantees a 100% gain in 2 years if the stock stays flat or goes up).

2)    2 FREE months of the Options Tutorial Program (a $49.90 value), which includes:
·    A 14-lesson tutorial on trading stock options which will give you a thorough understanding of trading stock options.
·    A weekly update of 8 actual portfolios so that you can follow their progress over time.
·    Specific trades for each portfolio emailed to you so you may mirror them in your own account if you wish.
·    Access to historical analytic reports and portfolio updates posted in the Insiders section of Terry’s Tips.
·    If you choose to continue after the 2 free months, do nothing, and you’ll be billed at a discounted rate of $19.95 per month.  

3)    A FREE special report  “How We Made 100% on Apple in 2010-11 While AAPL Rose Only 25%“.

With this one-time offer, you will receive everything for only $79.95, the price of the White Paper alone. But you must order by Tuesday, August 2, 2011. Click here and enter Special Code 802 in the box at the bottom of the page to get the special Apple report as a free bonus.

Tags: , , , , , , , , , , , , ,

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