Everyday Finance

My Options Play on Apple

TCK- With volatility at a very low level tha value just isn't there now. I could only get another 1000 or so for another decent call but would have to cap upside pretty close and just shelled out 4k for buyback. So I opted to take a little cash out due to portfolio imbalance as well.

On Wash Sale- you're totally right. Freudian slip! I'm sitting on losses elsewhere in the portfolio and the topic is on my mind but wrt a gain, no concerns then. Thanks for pointing out!

Apple: Impressive Earnings, Surprising PR Gaffe

Regarding these comment:
But I will bet dollars to doughnuts that it was not a decision by upper management or marketing to release the game....But no need to get up on your high horse and rave about it like it was some devious plot!

...That was my point. I said a) they deserve a pass and b) it's probably some low level employee that rubber stamped it and they need to insert some prudence and an actual review into their process. If it is a 1 person rubber stamp, for a company of their stature (and as evidenced by this PR hit), it was imprudent for them to not have better controls.

I have no ulterior motives; I'm actually long AAPL (had disclosed via my volatility link imbedded, but forgot to at the bottom of my post, sorry) , just reporting my opinion on this minor PR gaffe.

Possible Outcomes of My Apple Purchase

OK guys, a couple comments warranting further discussion:

"It is incorrect to say your loss is "limited" on a covered call because you won't be selling the stock. The outcome is indeed the same as Krishna mentioned: in both cases, if the stock closes below the strike price you end up being the owner of the stock (the put buyer will assign you the stock, remember? And in that case, just as in the call, you pocket the premium)."

Well, most people would prefer to close out the position rather than being assigned the stock, which may result in a margin call or some other poor use of capital. That's why I was referring to a run down to zero on a put you sold (assuming you closed it out close to expiry and it wasn't assigned back yet).

"It is very ironic that even big brokerage firms sometimes don't exactly understand the differences. They allow a covered-call-strategy in your IRA but do not allow a naked-put."

Why wouldn't a firm allow you to do covered calls? It's tied to owning stock long which is investing 101. Selling a call on stock you own does not increase your risk or exposure in any way. It essentially just caps your upside...not catastrophic. Conversely, selling unsecured puts or calls for that matter opens you up to leveraged losses. In the example I provided, I actually needed the ~$9500 to execute the strategy and sold a single call to "cover" an upside move. If I wanted to do your put sale method, in theory, one could sell an infinite number of puts and be out an infinite amount of money if there were no capital requirements or flat out restrictions on such moves and the stock moved below strike. I think it is reasonable that in an IRA account, which is supposed to be a retirement account for long term investing, naked position are disallowed.

Possible Outcomes of My Apple Purchase

Krishna,
The two strategies are nothing alike. Your upside loss is capped by selling a "covered" call, whereas your downside is unlimited when selling a put until it hits zero. The one I highlighted has clearly defined benefit upward and a breakeven even if the stock declines. I intend on holding the stock regardless-at least when you own the shares, you can hold as long as you like and you never take a loss until you actually close your position...a put forces you to close out during what may be a horrible time (imagine if you sold several puts with Nov2008 expriy and had to close them out this month?); it's actually less risk than just buying the shares outright (which is investing 101) since you capture a nice premium at historic highs due to VIX. Not sure what your gripe is.

Apple Credit Spreads: Targeting 500% Return

Hey techy, I like your move as well. Prospective investors should be aware that this could be disasterous any time you're selling a naked position (i.e. if Apple went to zero, as unlikely as it is, you'd be out several thousand dollars). New investors may want to consider closing the position buy buying a put too at say, a much lower value. You'd still capture a decent premium, but limit your risk and liquidity requirements.

Apple Credit Spreads: Targeting 500% Return

Yes, considered the single long option. I this case, I wanted to be able to own 2 contracts, so I could close one at say, 170 and keep the other one to see what happens. I often regret closing a single position too early or late and not spreading the wins, if you will (or losses). Doing the spread allowed for a smaller outflow. I'm sure you're aware that most options expire worthless. So, I figured, let me pick a reasonable bottom strike, but with 2 contracts and limit my outflow with the cap.

Good points on the cost, Apple is indeed expensive; highlighted the high Beta of the underlying stock. With VIX at all time highs, definitely paid a volatility premium.

Apple Credit Spreads: Targeting 500% Return

Debit, you're right. It's a spread nonetheless, but yes, it would only be a credit if I sold the closer strike and bought the further strike. Thanks for the clarification.

The rationale, risk/benefit, etc. is all correct.

To NinjaHamster, I generally just open/close the options positions instead of getting involved with holding the underlying shares. At these prices, holding 200 shares gets quite expensive. With spreads (debit or credit), the liquidity requirements are quite low since your max loss is capped.

Analyst Buy and Sell Ratings for Stocks and Sectors

I think it's very interesting to see Frontline (FRO) in the high sell bucket. It's been a stellar performer of late, benefits from high oil/commodity prices and carries an enormous yield. I own, it so I'm a bit biased, but I think they got it wrong on that one.

Stock Money Flows and Notable Dividend Increases

Hey, great to see the inflows/outflows, not something you see everyday. Regarding dividends, pretty big names, not real high dividends on a relative basis. Still a fair amount of double digit and high single digit yielders out there. I like IAF and PCU. I'm profiled plenty of US and other internationals as well over the past few weeks.

Dan at
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