TheGoonior
Registered: Oct 2009
Posts: 832 |
04-25-12 03:54 PM
Quote from youngtrader23:
@TheGoonior -- So you would have just called 1 lot at 600? I am thinking of doing something similar tomorrow--just calling at 650 for the May contract. Am I using the correct language?
I'm not sure what strike I would have used. Long a 560 or long a 600 would each have given about a 100% return, but obviously the capital outlay was different...just depends on what size of move you expect, how much you have, and how much you want to risk.
At this point, I would almost certainly play things as a spread instead of the outright call:
1) A big move just happened and everyone is piling in. AAPL is currently moving higher, but a lot can happen between now and May expiration. Could you get another big move up? Sure, but you could also get a grind up or even a pullback, both of which will mangle your straight call. Earnings has already happened, so in my opinion, any surprise events at this point would probably be negative ones.
2) The front month call exposes you to a high time decay (theta). In addition, the big move has pumped up the volatility, so now you're paying a premium price for the options. A spread could offset a good amount of this risk while giving you decent upside.
For example, a May 650/665 spread drops your theta exposure by about 80% and reduces your capital risk by about 50%.
You can probably do some other cool stuff with flies, etc, but I'll let Atticus & others chime in on those because I don't trade them that often.
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