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yalag

Registered: Mar 2012
Posts: 15

08-06-12 05:06 PM

I'm going long with AAPL. I believe there will be significant jump some time in the lat 2012 or early 2012. Was wondering if anyone would give any advise for buying the 2013 Apr call ITM options? Would this be a good idea?

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diaoptions

Registered: Aug 2011
Posts: 392

08-06-12 11:19 PM

What is your target price for AAPL in April 2013? You could consider a butterfly built around that price. Example: $620.00.

Buy 1 $540 Call @ $108.00.
Sell 2 $620 Calls @ $61.00 x $122.00.
Buy 1 $700 Call @ $31.00.
Total Debit: $1700.00.
Maximum loss $1700.00 if AAPL is <540 or >700 at expiry.
Maximum gain $8000.00 if AAPL is $620.00 at expiry.

If your AAPL target price is $650.00 then the body of the butterfly would be at $650.00, and the wings plus/minus a few strikes.

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yalag

Registered: Mar 2012
Posts: 15

08-07-12 06:24 AM

But I'm predicting a bigger move some time in the next 12 months. Say 700. Is butterfly still better than a straight long term call?

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diaoptions

Registered: Aug 2011
Posts: 392

08-07-12 06:37 AM

Quote from yalag:

But I'm predicting a bigger move some time in the next 12 months. Say 700. Is butterfly still better than a straight long term call?

Pick some calls and compare it to the butterfly below.

APRIL 2013

Buy 1 $620 Call @ $61.00.
Sell 2 $700 Calls @ $30.00 x $60.00.
Buy 1 $780 Call @ $14.00.
Total Debit: $1500.00.
Maximum loss $1,500.00 if AAPL is <620 or >780 at expiry.
Maximum gain $8,000.00 if AAPL is $700.00 at expiry.

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yalag

Registered: Mar 2012
Posts: 15

08-07-12 06:39 AM

Thanks! But can you give me some insights on which is a better strategy? What are the pros and cons?

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diaoptions

Registered: Aug 2011
Posts: 392

08-07-12 06:46 AM

Quote from yalag:

Thanks! But can you give me some insights on which is a better strategy? What are the pros and cons?

Pros = Cheap entry with wide profit range,
Cons = Can't think of any, would need something to compare it to.

PS: If you just buy the $620 Calls it will cost you $6,100.00 and if AAPL reaches $700 you get the same $8,000.00. But your gains are not capped like with the butterfly.

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