Archive for the ‘AAPL’ Category

Two Strategies For Making Extraordinary Returns With Apple Options

Tuesday, September 4th, 2012

This week is an unusual one for the Idea of the Week.  For the first time ever, I submitted an article to Seeking Alpha, and this newsletter supplies a link to that report. (My apologies if you came on board because of this article – our regular Idea of the Week will resume next Monday.)

Enjoy the report, and the report inside the article which documents every trade we made in an actual portfolio that gained us 357% after commissions in four weeks this summer.

Two Strategies For Making Extraordinary Returns With Apple Options

Here’s the linkTwo Strategies

To accommodate those folks who signed up for our free newsletter after Labor Day because of the Seeking Alpha article, we are extending the special offer we made last week for an extra week.

The Special Offer – To Celebrate the re-establishment of Auto-Trade at TD Ameritrade/thinkorswim, we are offering our Premium service at the lowest price in the history of our company.  We have never before offered such a large discount for the Premium Service.  If you ever considered becoming a Terry’s Tips Insider, this would be the absolute best time to do it.

And now for the Special Offer – If you make this investment in yourself by midnight, September 11, 2012, this is what happens:

1)    For a one-time fee of only $75.95, you receive the White Paper (which normally costs $79.95 by itself), which explains my favorite option strategies in detail, , 20 “Lazy Way” companies with a minimum 100% gain in 2 years, mathematically guaranteed, if the stock stays flat or goes up, plus the following services:
 
2)    Two free months of the Terry’s Tips Stock Options Tutorial Program, (a $49.90 value).  This consists of 14 individual electronic tutorials delivered one each day for two weeks, and weekly Saturday Reports which provide timely Market Reports, discussion of option strategies, updates and commentaries on 8 different actual option portfolios, and much more. 

3)    Emailed Trade Alerts.  I will email you with any trades I make before I make them so you can mirror them yourself or have them executed for you by TD Ameritrade/thinkorswim through their Auto-Trade program. These Trade Alerts cover all 8 portfolios we conduct.

4)    Access to the Insider’s Section of Terry’s Tips, where you will find many valuable articles about option trading, and several months of recent Saturday Reports and Trade Alerts.

5)    A free copy of my e-book, Making 36%: Duffer’s Guide to Breaking Par in the Market Every Year, In Good Years and Bad (2012 Updated Version).

With this one-time offer, you will receive all of these Premium Service benefits for only $75.95, (normal price $119.95). I have never made an offer anything like this in the eleven years I have published Terry’s Tips.  But you must order by midnight on September 11, 2012. Click here and enter Special Code Auto12 in the box located on the right side of your screen.

I feel confident that this offer could be the best investment you ever make in yourself.  Celebrate the resumption of Auto-Trade at TD Ameritrade/thinkorswim with us.  But do it before the September 11th, as this offer will not be available after that day.

I look forward to prospering with you. 

Terry

P.S.  If you would have any questions about this offer or Terry’s Tips, please call Seth Allen, our Senior Vice President at 800-803-4595.  Or make this investment in yourself at the lowest price ever offered in our 11 years of publication – only $75.95 for our entire package (regular price $119.95). Click here and use Special Code Auto12.

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Posted in AAPL, Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

An Interesting Statistic for Apple (AAPL)

Monday, August 27th, 2012

Today I would like to share with you one startling fact about Apple stock and a relatively low-risk way to earn over 50% in one year with a simple options trade. 

In a world when most people are complaining that it is really difficult to make a nickel in this market, options still offer alternatives that you are unlikely to find anywhere else.

An Interesting Statistic for Apple (AAPL)

AAPL has fluctuated all over the place for the past several years.  Most of the movement has been to the upside, but there have been serious downdrafts as well.  Following last April’s earnings announcement, for example, the stock rose to a new high of about $644 and then proceeded to fall about $100 over the next two months.

One thing has been constant, however, and knowing about it could be the most profitable idea you will encounter this year.  Here it is – ever since the market meltdown in late 2008 – there is not a single six-month period of time when the price of AAPL was less at the end of the six-month period than it was at the beginning of that period.  True, the stock tumbled about $100 from its high reached just after the April 2012 earnings announcement, but it has now more than recovered that entire loss and moved much higher (and we have not reached the six-month mark yet).

For the past 3 ½ years, there has never been a six-month period when AAPL was lower at the end of the six months than at the beginning of that stretch.  Think about that.  If you could count on that pattern continuing, it would be possible to make a single option trade, wait six months, and expect a significant gain at that time.

In June of this year when AAPL was trading about $575, I told my paying subscribers about a spread that I had personally placed (using large amounts of cash, in fact) in my family charitable trust account.  I placed what is called a vertical call spread on AAPL.  I bought AAPL 550 calls which would expire on January 18, 2013 (about 7 months away) and sold AAPL 660 calls with the same expiration date.

I paid just under $24 for the vertical spread ($2400 per contract).  If, seven months later, AAPL was at any price above $600, I would be able to sell the spread at exactly $50 ($5000 per contract).  If AAPL had not gone up, and was only at the current price ($575), the spread would be worth $25, and I would still make a small gain.

Of course, since that time, AAPL has moved much higher.  Now I am in a position where the stock could fall by $65 a share between now and January 18, 2013 and I will still double my money.

The spread I purchased for $24 is now trading for about $40.  I am still recommending to my risk-averse subscribers that it still might be a good investment, even at this price.  If you were to purchase the same spread for $40 or less, you would make 20% on your investment in January even if the stock were to fall by $65 during that time.

Meanwhile, my charitable trust account is prospering.  In two short months, its value has increased by 60%.  There will be a lot of happy Vermont charities when I send out donations at the end of this year.

Next week, I will discuss my latest thoughts on exactly which vertical spreads I would buy right now on AAPL to take advantage of the unusual pattern that is the subject of this week’s Idea of the Week.

There are many other ways that you can use options to make extraordinary gains when you feel fairly certain that a stock is headed higher.  One of our 8 portfolios is a bullish bet on AAPL.  Over the past five weeks, the stock has moved 13.3% higher, and this actual portfolio (mirrored by a large number of Terry’s Tips subscribers) has gained 360%.  Our portfolio has gained 27 times as much as the stock has gone up.

To celebrate the re-establishment of Auto-Trade at TD Ameritrade/thinkorswim, we are offering our Premium service at the lowest price in the history of our company.  We have never before offered such a large discount.  If you ever considered becoming a Terry’s Tips Insider, this would be the absolute best time to do it.

And now for the Special Offer – If you make this investment in yourself by midnight, September 4, 2012, this is what happens:

1)    For a one-time fee of only $75.95, you receive the White Paper  (which normally costs $79.95 by itself), which explains my favorite option strategies in detail, 20 “Lazy Way” companies with a minimum 100% gain in 2 years, mathematically guaranteed, if the stock stays flat or goes up, plus the following services:
 
2)    Two free months of the Terry’s Tips Stock Options Tutorial Program, (a $49.90 value).  This consists of 14 individual electronic tutorials delivered one each day for two weeks, and weekly Saturday Reports which provide timely Market Reports, discussion of option strategies, updates and commentaries on 8 different actual option portfolios, and much more.  

3)    Emailed Trade Alerts.  I will email you with any trades I make before I make them so you can mirror them yourself or have them executed for you by TD Ameritrade/thinkorswim through their Auto-Trade program. These Trade Alerts cover all 8 portfolios we conduct.

4)    Access to the Insider’s Section of Terry’s Tips, where you will find many valuable articles about option trading, and several months of recent Saturday Reports and Trade Alerts.

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

6)    A free copy of my e-book, Making 36%: Duffer’s Guide to Breaking Par in the Market Every Year, In Good Years and Bad (2012 Updated Version).

With this one-time offer, you will receive all of these Premium Service benefits for only $75.95, (normal price $119.95). I have never made an offer anything like this in the eleven years I have published Terry’s Tips.  But you must order by midnight on September 4, 2012. Click here, and enter Special Code Auto12 in the box on the right side of the screen.

I feel confident that this offer could be the best investment you ever make in yourself.  Celebrate the resumption of Auto-Trade at TD Ameritrade/thinkorswim with us.  But do it before the day after Labor Day, as this offer will not be available after that day.

I look forward to prospering with you. 

Terry

P.S.  If you would have any questions about this offer or Terry’s Tips, please call Seth Allen, our Senior Vice President at 800-803-4595.  Or make this investment in yourself at the lowest price ever offered in our 11 years of publication – only $75.95 for our entire package (regular price $119.95) using Special Code Auto12.

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Posted in AAPL, Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Buying Strangles With Weekly Options (and How We Made 67% in a Single Day Last Week)

Monday, July 2nd, 2012

Exactly one year ago, we spoke about an interesting options play that might be made before the July jobs report came out.  This Friday, the July 2012 report will come out before the market opens, and a similar trade might be in order.  It is interesting to note that one year ago, the market (SPY) was almost exactly where it is today.

 

Here are my exact words delivered on the Monday following the jobs report: “This week I would like to share an actual investment we made last Thursday which involved buying a close relative of a straddle called a strangle (buying a put and a call but at different strike prices).  Admittedly, the word strangle does not have the greatest of connotations, but it can be a wonderful thing as we learned last week.

 

Terry

 

Buying Strangles With Weekly Options (and How We Made 67% in a Single Day Last Week)

 

On Thursdays which precede the government monthly job reports,  we have sometimes employed a strategy that only does well if the stock (SPY) moves significantly in either direction once the report is published (we have noticed that volatility tends to be extreme on those days when the jobs report comes out).  Rather than betting that SPY will fluctuate by less than a dollar on Friday (the usual kind of bet we make), on the Thursday preceding the Friday jobs report, we sometimes buy either a straddle or strangle that will most likely make money if SPY moves by more than a dollar on Friday.

 

This was the Trade Alert we sent out to Insiders on Thursday, July 7, 2011 with about 10 minutes remaining in the trading day:

 

“July 7, 2011  Trade Alert  -  Last Minute  Portfolio


With the government jobs report due tomorrow, we would rather bet that the stock moves by a dollar or more rather than placing calendar spreads that make a gain only if the stock moves by less than a dollar.  We will invest only about a quarter of our available cash:

 

BTO 30 Jul2-11 135 put (SPY110708P135)

BTO 30 Jul2-11 136 call (SPY110708C136) for $.68 (buying a strangle)”

 

With SPY trading just about half way between $135 and $136 Thursday afternoon, we decided to buy the above strangle rather than a straddle.  If the stock had been closer to one particular strike price, we would have opted for a straddle instead.

 

We bought 30 strangles for $68 each, investing $2040.

 

If at any point on Friday, SPY changed in value by more than $1.00 in either direction, we could probably sell those options at a profit.  (At any price above $136.50, the calls could probably be sold for more than $68 we paid for the strangle, and at any price below $135.50, the puts could be sold for more than we paid for the strangle.)  A small amount could also probably be gained by selling the other side of the strangle as well (unless the stock moved well more than a dollar).

 

When the government report came out on Friday, the market was spooked by the poor numbers  – Non-farm private payrolls were expected to grow by 110,000 while the actual number was a disappointing 57,000.  Total nonfarm payrolls grew only 18,000 compared to an expected 80,000 (government jobs dropped by 39,000). The stock (SPY) opened down $1.40 and moved down almost $2 during the day.

 

Early in the day while the 135 puts were trading at about $1.00, we placed a limit order to sell 25 of our 30 puts at $1.10, and the order was executed about a half hour later. This would insure that we made a profit for the day no matter what happened from that point forward.  We were hoping that either the stock moved lower and we could sell the remaining 5 puts for a higher price or the stock would make a big move upward and maybe we could collect something from selling our 30 calls at the 136 strike.

 

The stock continued to fall, and later in the day we placed an order to sell the remaining 5 puts. We collected $1.52 ($152) each for them.  That wasn’t the absolute high for the day but it was darn close.  Had we waited until the close, we would have only received $.37 for those puts, and lost money on our investment.  This proves the value in taking a profit on the great majority of positions whenever it might come up rather than waiting for a possible windfall gain if the stock continues in only one direction.

 

Bottom line, we collected a profit for the day of $1363 after commissions on our investment of $2040, or 67%.

 

Straddle buyers like volatility as much as we don’t like it in our other portfolios.   There are many ways to profit with options. It is best to remain flexible, and use the option strategy that best matches current market conditions. Buying straddles or strangles when option prices are low and volatility is high is one very good way to make extraordinary gains, as we happily did last week.

 

The downside to buying straddles or strangles is that if the market doesn’t fluctuate much, you could lose every penny of your investment (although if you don’t wait too much longer than mid-day on the day options expire, even out-of-the-money options retain some value and should be able to be sold for something).  This makes it a much riskier investment than the other option strategies we recommend at Terry’s Tips.  However, straddle- or strangle-buying can be quite profitable if the current market patterns persist.

 

A personal thought – I think that expectations are so low for Friday’s jobs report (and May’s report was so disappointing), that there is a good chance that the market will surge on Friday.  Instead of buying a straddle or strangle, I plan to spend a very small amount of money buying an out-of-the-money Jul1-12 Weekly call (maybe paying $10 or less per option) just in case the stock skyrockets.  It is my lottery ticket purchase for the week, a reward to myself for having had such a good week (I have been quite long AAPL).  Chances are, I will lose the entire investment, just as the chances are hopelessly against you when you buy a lottery ticket.  At least my odds are better than being hit by lightning (the lottery ticket odds).

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Posted in AAPL, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Using a Vertical Call Spread to Bet on Apple

Tuesday, May 29th, 2012

For the second straight week, six of the eight portfolios carried out at Terry’s Tips gained last week, and the average of all eight portfolios was a whopping 16% gain.  Each week, after commissions.  Where else other than options can you enjoy returns like this?

Today I would like to discuss one of my favorite option spreads if you like a particular stock.  I like Apple, and have recently placed the spread discussed today in my personal account.

Using a Vertical Call Spread to Bet on Apple

I think there are about a dozen reasons why Apple (AAPL) will be trading at a higher price next January than it is right now.  First of all, in spite of growing at about 80% a year, it sells at a lower p/e ratio than the average company in the S&P 500.  Second, the company’s last earnings exceeded analyst expectations by a wide margin (year-to-year growth of about 90%) yet the company is trading at a lower price than before the announcement.  Fundamentally, the stock is clearly undervalued. But the real story is in what is likely to happen over the next six months or so.  Look at this list of possibilities:

1)    A dividend will be made in July for the first time ever.  As soon as it is declared, many big mutual funds (whose charter does not allow them to buy companies which do not pay a dividend) will finally be able to buy shares (and they most certainly will).
2)    A pre-announced $10 billion stock buy-back will start in January.
3)    The iPhone 5 will be available before Christmas.  Many analysts believe that this will be the biggest new product introduction of any company in 2012.
4)    A revolutionary interactive iTelevision product is rumored to be coming, with an announcement possible as early as June (at the same technology conference where Steve Jobs often announced new products).
5)    The company is rumored to be offering a new way of paying for most everything with a mobile device (as is becoming the norm in Europe).  You will be able to pay tolls or get Coke from a vending machine with your cell phone. With an installed base of 200 million iPhones, they seem to be in an excellent position to become the PayPal of mobile devices (which may explain why they are sitting on much of their $100-billion cash hoard rather than distributing it to stockholders).  
6)    They apparently still can’t make iPhones in China fast enough to satisfy the demand, and the largest Chinese telephone company has not yet been allowed to offer the phone to its customers.

And the list goes on.  I think it is highly likely that AAPL will be selling for significantly more next January than it is right now.  So how do I use options to bet on a higher stock price?

I generally do not like to buy calls, or puts, when I believe the market or a particular stock is headed in a certain direction.  Buying an option is putting your money on a depreciating asset.  If the underlying doesn’t move the way you want it to, your investment goes down in value every day.

Rather than buying a call on a stock that you believe is headed higher, you might consider buying a vertical spread.  A vertical spread is simply the purchase of an option and simultaneous sale of another option at different strike prices in the same expiration month (same underlying security, of course).  A vertical spread is a known as a directional spread because it makes or loses money depending on which direction the underlying security takes.

Here is what I did with AAPL.  I bought the January 2013 530 calls and sold the January 2013 580 calls for $25 ($2500 per spread) last week when the stock was trading about $562 (Friday’s close).  If AAPL is trading above $580 in January as I expect it will, this spread will be worth $50, and I will double my money in about seven months.

The downside of buying a vertical spread is that if you are right and the underlying moves in the direction you had hoped, your gain will be limited by the strike prices of your long and short positions.  No matter how high AAPL goes by next January, this spread will never be worth more than $50.

However, the neat thing about vertical spreads is that if the stock doesn’t move at all, you might just make a gain.  With this spread, if the stock is trading exactly where it is today ($562), my investment will be worth $3200, or $700 more than I paid for it, making about 28%, and the stock hasn’t gone up a penny.

Most people would be delighted if they made 28% on their money in a year.  Here is an opportunity to make that much in seven months even if you are wrong (for betting that it will move higher).

Vertical spreads are just another reason why I love options.

Bottom line, buying a vertical spread lowers your potential loss and also lowers the potential gain.  In most instances, I prefer buying a vertical spread to the outright purchase of puts or calls.  In the above example, I would gladly trade the benefit of making 28% if I am wrong and the underlying didn’t change in value with the limited gain I could make if I were right (I’m not a greedy guy – I will be happy with a 100% gain for seven months). 

Of course, if I am totally wrong and the stock moves dramatically lower, I could lose my entire investment.  Just like I could do if I bought any stock or option.  You have to be willing to take a little risk to make a big reward.  I am comfortable enough with Apple’s prospects to take this risk (in fact, I own vertical spreads on AAPL at many other strike prices and expiration months as well).

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Posted in AAPL, Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios | 1 Comment »

Interesting AAPL Price Change Pattern

Monday, April 9th, 2012

For several weeks now, I have been sharing my thoughts about trading options in Apple (AAPL).   During this time, two actual portfolios we carry out at Terry’s Tips have averaged double-digit gains every week.  No wonder we love the stock.

Today I would like to share something we have noticed about how AAPL fluctuates in price during the week, and a likely explanation for this pattern.

Interesting AAPL Price Change Pattern

We carry out two actual portfolios at Terry’s Tips which use AAPL as the underlying stock.  Many of our subscribers mirror these trades in their own account or have thinkorswim execute trades for them through their Auto-Trade program.  (By the way, this Auto-Trade program will not be available for new thinkorswim clients until after the May options expiration due to their integration with TD Ameritrade.)

The first portfolio is called William Tell.  It uses what we call the Shoot Strategy (as in shoot for the moon).  It is different from our major strategy which does not try to guess which way the market is headed.  The Shoot Strategy is designed to significantly outperform the purchase of stock for a company you believe is headed higher.  Since we selected AAPL as the underlying, you can guess why we call this the William Tell portfolio.

Last week, as you probably know, was a great one for AAPL.  It shot up by $34.13 (5.7%).  Our William Tell portfolio gained a whopping 37.4%, or about 6 times as great a change as the stock enjoyed.  Since we started the William Tell  portfolio on April 9, 2010 (exactly two years ago today), the stock has gone up by 137% while our portfolio has gained 810%, almost 6 times greater than the stock went up.  This is not just a hypothetical gain.  It is in an actual account and includes all commissions.

The second portfolio that currently uses AAPL as the underlying is called Terry’s Trades.  It was started in October 2011 to mirror the same trades that I am making in my personal account.  In the first few months of operation, this portfolio invested in strangles and straddles on SPY and the Russell 2000 (IWM), and some volatility plays (trading XIV and VXX), and about two months ago, switched to trading AAPL options (mostly buying the first month out and selling Weeklys against those long positions).

In the six months of operation for the Terry’s Trades portfolio, it has gained 294%, after commissions, of course.  Much of this gain was due to the recent performance of the AAPL options.

Over the last two months, we have noticed an interesting pattern in how the price of AAPL changes (and checking back over the past several months for the monthly expiration Fridays).  The pattern is simply that on Fridays, the price of AAPL often falls, and on Mondays it goes back up.  A week ago, March 30, it fell $10, and on Monday, April 2, it rose by almost that exact same amount, for example.

There may be a simple explanation for this pattern (by the way, the pattern was even more consistent on the third Fridays of the month when the monthly options expire).  Many people are bullish on Apple, but the cost of the stock is so expensive that they only have enough cash to buy calls on the stock rather than the actual shares.  When more people are buying calls than they are puts (as is the case in AAPL options), the people who are selling those calls are the market makers.

Market makers (I know, since I used to be one) seek at all times to have a delta-neutral portfolio which means that they want to be in a position where they don’t care whether the stock goes up or down.  If they end up with a large number of short calls in their account, the easiest way to balance their risk is to buy stock.  When they go into the market and buy stock, the price naturally rises.

On Fridays when the Weekly calls expire (and more importantly, on those third Fridays when the regular monthly options expire), the market makers are no longer short all those calls, and they can sell the stock to balance out their portfolios.  When they do this, the stock falls in price.  On Monday, new call buying might take place, and they once again have to go into the market and buy stock to balance things out once again.

We don’t know for certain that this is what is happening, but the pattern is quite persistent.  We have been taking advantage of this pattern in our portfolios.  On March 30, for example, when we normally roll our short Weekly calls over to the next week, we did nothing.  Instead, we waited until Monday to sell new calls, and when we did, the price of the stock had gone up almost $10, and we got much higher prices for the calls that we sold.

Happy trading if you choose to duplicate what we are doing.  Of course, you should never risk money that you can’t afford to lose.

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Posted in 10K Strategies, AAPL, Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | 1 Comment »

Update on Another AAPL Spread Idea

Monday, April 2nd, 2012

This week I would like to tell you the results of the AAPL spread idea I told you about last week. 

Update on Another AAPL Spread Idea

Last week I suggested buying 3 AAPL calendar spreads (buying April-12 options and selling Mar5-12 options) at the 595 strike price (using puts) and the 600 and 605 strike prices using calls, and to increase all these strikes by $5 if the stock opened up about $5 higher on Monday (which it did).

I purchased these calendar spreads in my own account at the 600, 605, and 610 strikes, paying an average of $11.50 ($1150), slightly higher than I expected they would cost in last week’s report.

When AAPL fell by $10.30 on Friday, all of my short call options expired worthless and I had to pay $.50  ($50) to buy back the about-to-expire Mar5-12 600 put.  The value of my remaining April-12 options were $16.85, $14.45, and $12.30, and my net gain after commissions was $905, or about 38% on my $3500 investment.  Not bad for a week’s effort.

The gains I made were remarkably similar to those that the risk profile graph I included last week said they would be.  That gives me confidence in those graphs I refer to every day and display for my paying subscribers each week.

In spite of AAPL being essentially flat for the week, the Terry’s Tips portfolio which has traded this company exclusively for almost two years has now gained 703% over that time period.  It is our most successful portfolio.

I think the exact same spreads I suggested last week could be placed again this week, this time selling the Apr1-12 Weeklys and buying the Apr-12 monthlys.  The spreads should be less expensive this week (averaging about $8.50 per spread rather than $11.50.

Happy trading if you choose to duplicate those positions.  Of course, you should never risk money that you can’t afford to lose.

We have made 3 short videos which explain the 3-week results of our AAPL trading. The original positions were set out in an actual account carried out at Terry’s Tips.  The YouTube link is http://youtu.be/6J9KPuimyXk

The portfolio was updated in the Week 2 video -
http://youtu.be/e0B7_6e_5AE 

And finally, adjustment trades we made were displayed in this little video –
http://youtu.be/YC3d2NuX2MI  Be sure to enlarge it to full-screen mode so you can see the numbers. 

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Posted in 10K Strategies, AAPL, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Another AAPL Spread Idea

Monday, March 26th, 2012

Last week I suggested buying a SPY Weekly strangle to take advantage of the unusually low option prices that exist today.  Last Monday, I bought a Mar4-12 141 call and 140 call for $1.09 ($111.50 including commissions).  For the first three days, the stock did not budge beyond the $1.50 in either direction that I needed to make a profit on the trade.  Finally, on Thursday it fell enough so that I could at least break even so I placed an order to sell the strangle for $1.14 which executed, exactly covering my cost after commission.  If the stock had fallen that much earlier in the week, I would have held off selling it in hopes of a nice profit.  But I was happy with a break-even trade in a very quiet week.  I plan to place a similar strangle buy on Monday (today).

You may be bored from hearing about another AAPL trade.  But here is another one this week.  Terry’s Tips carries out two option portfolios that use AAPL as the underlying.  Last week was a quiet week for AAPL.  It went up only 1.8%.  Both of our actual portfolios gained over 23% after commissions for the week.  We don’t think that is boring.  Most investors would be happy with that size gain for two years, not seven days.

One of our AAPL portfolios has been running for just under two years, and has gained just shy of 700% while the stock doubled in value.  So we are partial to this stock.

Today I will discuss an AAPL option play that is similar to one in one of our actual portfolios.

Another AAPL Spread Idea

AAPL option prices are high compared to historical levels.  Since there is an earnings announcement coming late in April, option prices tend to move higher.  The stock also tends to move higher in advance of earnings announcements.  So we set up the following portfolio with a slightly bullish stance. 

To keep it simple, with AAPL trading at $596 where it closed Friday we will buy three calendar spreads.  We will buy the Apr-12 options (which expire April 21, 2012) and sell the same-strike Mar5-12 options which expire on Friday, March 30, 2012. 

We will buy one calendar spread using puts at the 595 strike, and one calendar spread using calls at both the 600 and 605 strikes.  These spreads will cost an average of about $11.25 ($1125 plus a commission of $2.50 which is what thinkorswim charges Terry’s Tips subscribers).  So the total investment will be about $3500, and we set aside another $1200 or so in case we need to add another similar spread this week at a higher or lower strike price (based on which way the stock moves).

This what the risk profile graph shows for the above three calendar spreads:

The P/L Day column in the lower right-hand corner shows the expected gain if the stock remains at $596 or goes up or down by $10 during the week.  You can see that there should be a gain if the stock ends up within a range from about $585 to $612.  If the stock stays about flat or goes up by $10, we could make as much as 25% on our investment in five short days.  If it moves by a much larger amount we could lose money, however.

If AAPL moves about $5 higher or lower before we buy these spreads on Monday, we would raise or lower the strike prices we used by that amount, using puts for spreads at strikes below the stock price and calls for strikes which are higher than the stock price.

If, during the week, the stock moves by $10 in either direction, we would use the cash we set aside to buy another calendar spread using the same option series at either the 620 strike (using calls) if the stock has gone up by $10 or at the 580 strike (using puts) if the stock has fallen by $10.  The additional spread would provide some protection against a loss if the stock continued to move in the same direction.

If you think AAPL is headed higher next week you would start out with spreads at higher strike prices than we have used in our sample, and vice versa.  We take the position that we really don’t know which way it is headed, but we know from experience that the weeks leading up to an earnings announcement are usually up weeks, so we have set up spreads which make about as large a gain if the stock goes up by $10 as they do if the stock remains flat.

Happy trading if you choose to duplicate our positions.  Of course, you should never risk money that you can’t afford to lose.

We have made 3 short videos which explain the 3-week results of our AAPL trading. The original positions were set out in an actual account carried out at Terry’s Tips.  The YouTube link is http://youtu.be/6J9KPuimyXk

The portfolio was updated in the Week 2 video -
http://youtu.be/e0B7_6e_5AE 

And finally, adjustment trades we made were displayed in this little video –
http://youtu.be/YC3d2NuX2MI  Be sure to enlarge it to full-screen mode so you can see the numbers. 

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Posted in 10K Strategies, AAPL, Stock Option Trading Idea Of The Week, Terry's Tips Portfolios, Weekly Options | 2 Comments »

How to Contend With Historically Low Option Prices

Monday, March 19th, 2012

Option prices for the market in general (SPY) are lower than they have been for five years.  Maybe it is time to change from a strategy of selling short-term options (the strategy carried out at Terry’s Tips) to one of buying those options and hoping the market is more volatile than those low option prices would expect.

We will discuss that possibility today.

How to Contend With Historically Low Option Prices

Before discussing the situation of low option prices for most equities, I should comment on the continuing high option prices for Apple.  Implied Volatility (IV – the most important determinate of whether option prices are “high” or “low”) is about 40 for AAPL.  This means the market is expecting AAPL to fluctuate about 40% over the course of a year.

The high option prices for AAPL has meant that our calendar spread strategies has been quite successful of late (we move our calendar spreads to new strike prices as the stock moves higher).  We carry out two AAPL portfolios at Terry’s Tips – one gained 8% last week and the other gained over 20%.  The one that gained 8% has been operating for one month less than two years and is now ahead by 642%.  It is our most profitable portfolio by a large margin. 

Compare this 40 IV number for AAPL to IV of the S&P 500 tracking stock, SPY, which is called VIX.  It is less than 15, and briefly fell below 14 last week for the first time since I can remember.  This is extreme low territory (the mean average is about 20).

The IV picture for SPY gets even more interesting when you check out the Weekly options.  When VIX is calculated, the Weekly option prices are not included (only options with 8 or more days of remaining life or included).  IV for the SPY Weeklys is only 12.47.

Last week SPY rose $2.70 and the week before, moved by $3 in both directions during the week.  If you bought an at-the-money straddle or strangle using SPY Weeklys at today’s prices in either of those weeks, you would surely have doubled your money in a single week.

With SPY closing at $140.30 last Friday, you could have bought a 140 Weekly straddle (both a put and call at the 140 strike) for $1.80 or a strangle (the 141 call and the 140 put) for $1.33.  If the stock moved by at least $1.50 in either direction next week, either of those purchases should result in a gain.  SPY moves by that much in just about every week, even in quiet markets like we have been having so far this year.

_ _ _

It is an interesting trade to try.  I plan to buy a few this week (in both my personal account and in one of the Terry’s Tips portfolios), just to test it out.  Of course, you should never risk money that you can’t afford to lose.

We have made 3 short videos which explain the 3-week results of our AAPL trading. The original positions were set out in an actual account carried out at Terry’s Tips.  The YouTube link is http://youtu.be/6J9KPuimyXk

The portfolio was updated in the Week 2 video -
http://youtu.be/e0B7_6e_5AE 

And finally, adjustment trades we made were displayed in this little video –
http://youtu.be/YC3d2NuX2MI  Be sure to enlarge it to full-screen mode so you can see the numbers. 
_ _ _
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 the two AAPL-based portfolios) 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

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Posted in AAPL, SPY, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Lessons Learned Around the Apple New Product Announcement

Monday, March 12th, 2012

Three weeks ago, we set up a special portfolio with a goal to make 100% on AAPL options in 4 weeks.  We closed out the positions last Friday, a week early.  We failed to reach our goal.  The portfolio started out with a value of $4488 and after 3 weeks, it was worth $7172.

The gain for the 3 weeks was 60% (after commissions).  Even though we failed in our initial goal, most of us were happy with making 60% in less than a month on our money.

For two years, Terry’s Tips has carried out at least one portfolio (and sometimes two) which use AAPL as the underlying, and we have noticed some patterns of stock price actions and option values that I would like to share with you today.

Lessons Learned Around the Apple New Product Announcement

AAPL has been a great underlying stock for Terry’s Tips subscribers.  In April, 2010 (just under two years ago), we set up an actual brokerage account to trade options on AAPL.  We started with $5000 in the account. 

We maintained a bullish position in this portfolio because we liked the prospects for this company.  Actually, it performed quite a bit better than we expected.  Over the two years, whenever the portfolio value grew to over $10,000, we withdrew cash from it so that new Terry’s Tips subscribers who wanted to mirror the portfolio in their own account (or have trades made for them through the Auto-trade program at thinkorswim) could get started with $10,000.

A total of $13,000 was withdrawn from the portfolio over two years, and the account today is still worth more than $10,000, or double what subscribers started with.  It works out to a gain of about 565% over the period.

We learned some things along the way.  First, in the few weeks leading up to an announcement of earnings or a new product release, the stock tended to move higher.  Once the announcement was made, the stock usually fell back a bit (market expectations seem to be greater than the reality). 

There is an old saw in the market – “buy on the rumor and sell on the news,” and it seemed to prevail after the Apple announcements most of the time.

Last week, we expected a similar pattern once the news about the new iPad was announced.  We added new spreads to our portfolio to provide downside protection in case the pattern continued (we bought new calendar spreads at strike prices well below the current price of the stock).  These spreads ultimately lost money when the stock did not fall this time around.  At one point shortly after the announcement, it did fall by almost $30 but quickly reversed itself.

In spite of this experience, we expect that in future AAPL announcements, such as the quarterly earnings announcement due near the end of April, we plan to add downside protection once again.

The second big pattern we noticed concerned the option prices around announcement time.  Leading up to the announcement, option prices soared.  The implied volatility of the March options got up to 40, and fell all the way to 25 after the announcement.  In the experimental portfolio we started with $4488, we had used Weekly Mar2-12 as the long side, and these prices collapsed after the announcement.  The portfolio lost money for the week.

In our other AAPL portfolio, the one we have been running for almost 2 years, our long positions were in further-out months, and these option prices did not collapse.  As a result, this portfolio gained 11% for the week (even though we had placed some downside protection spreads in it as well).

In future announcement periods, we intend to use longer-term call options as the long side to avoid the collapse of shorter-term option prices once the announcement has been made, even though those options are quite a bit more costly.

We have made 3 short videos which explain the 3-week results of the special shorter-term portfolio (which we have now closed down and replaced with a new set of AAPL options).  If you have not already seen these videos, you might check them out.

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

The portfolio was updated in the Week 2 video -
http://youtu.be/e0B7_6e_5AE 

And finally, adjustment trades we made were displayed in this little video –
http://youtu.be/YC3d2NuX2MI  Be sure to enlarge it to full-screen mode so you can see the numbers. 
_ _ _
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 the two AAPL-based portfolios) 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

 

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Posted in 10K Strategies, AAPL, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Making Adjustments When the Stock is Moving Strongly Higher

Monday, March 5th, 2012

Greetings!

A little over two weeks ago, we set out with a goal to make 100% on our AAPL options in 4 weeks.  We started with calendar spreads at several different strike prices, one below the stock price and most of them at higher strikes.

We thought we could double our money in 4 weeks if the stock would hold steady or move moderately higher.  As you may know, it overachieved this goal and rose over $20 in each of the first two weeks.

Today we will discuss the adjustments we had to make to keep up with the skyrocketing stock.

By the way, in spite of the stock moving much higher than we would have liked, we have gained 78% (after commissions) on our actual portfolio over the past two weeks, about 9 times as great as the increase in the stock price.

Next week, we will disclose the actual positions we will set up in an effort to duplicate this performance in the next 4 weeks.  Stay tuned.

Terry

Making Adjustments When the Stock is Moving Strongly Higher

As AAPL chugged steadily higher, our calendar spreads (all in calls) so became all in the money (i.e., at strike prices which were lower than the stock price).  Since we were betting that the stock would stay flat or rise moderately, we needed to buy back our lowest-strike short calls and replace them with higher-strike short calls.  Each such trade required us to put up a little extra cash because the calls we were buying back cost more than the premium we received from selling new higher-strike calls.

When our cash reserve was used up, we had to take off (sell) some of our positions, once again buying back our lowest-strike short calls, but this time selling our lowest-strike long calls and using the cash to buy new calendar spreads at higher strike prices.

I know that this all sounds complicated, and is a lot of work, but we think it is worth if a 78% gain in two weeks is one of the rewards.

The actual adjustment trades we made last week at displayed in this little video –
http://youtu.be/YC3d2NuX2MI  Be sure to enlarge it to full-screen mode so you can see the numbers. 

Two weeks 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

Last week, the portfolio was updated in the Week 2 video -
http://youtu.be/e0B7_6e_5AE 

Again, switching to full-screen mode is advised.

 

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Posted in 10K Strategies, AAPL, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

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