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.
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 –
Again, switching to full-screen mode is advised.