First off I'd like to say this forum is extremely helpful and I have been lurking for a while but just recently got involved with options however I have been trading stocks for years. I have been wanting to buy some Nov calls deep OTM since 140. I waited because I thought Apple would pull back plus the time decay. So I learned the hard way and have watched the options go sky high. Bottom line is, I think Apple will blow away earnings and possibly announce a stock split and the stock will be trading in the 200-240 range by the end of Nov expiration. My strategy is to buy Nov calls (strike price yet to be determind) at .10-.20 an option but by 100-200 of them, for a total of $2k. (somewhere probably between 230-250 depending on how much more it pulls back on top of today). The way that I look at it is it is easier for an option to go from .10-1.00 and have a 1000% return, or $20k. Of course if the company doesn't blow away earnings, the options could be worthless the next day and I could lose $2k. Does this seem like the best strategy for the best ROI? Of course I could buy some at different strike prices and I may very well do so, however any pro's or cons that could be directed my way will be greatly appreciated. Thank you.
OK your options may be expired buy the time the earnings and split happen. If all that is true, I would go Dec. Maybe even sell Nov to fund Dec if you like spreads. However, your 1000% if the best case. What happens if you get a quick 90+% after the news. You gonna hold on to them or cash out ? What is the risk to do either? Can you get out of 1/2 the position at a specific time being happy and let the rest fly with no regards. YOu may also consider to hedge on the others with a put somewhat of a straddle. This way a move in either direction could make it overall profitable with less margin of error and still hava the time to leg out to try and get something from either side if it wobbles back and forth a bit not knowing what to do.
Thank you for your response. I do plan on buying a few puts just in case. An if i was up 90% I would definitely sell most and let a little ride. However is my strategy of buying the most of the cheapest calls the best for ROI?
It can produce the biggest gains but probably not frequently enough to make it a good strategy. Instead of putting on the position all at once at one strike price, consider buying 10-20 contracts at first, then buy another 10-20 at a higher strike-price after you have a decent profit on the first trade and on and on. In a sense, you're going to dollar-cost-average into progressively winning positions at progressively higher strike prices and get out of the entire thing all at once according to your own risk parameters.
I'd go with calendar call spread to minimize time decay. The one I bought 2 weeks ago is Nov-Jan @180 strike.
So the Calendar call spread you are reffering too would mean I would buy BOTH the Nov and Jan calls correct? Yes it is a lottery ticket, however, the odds I think are much better in my favor.
No: Buy Jan, Sell Nov. Nov decays faster then Jan, so you are protected from that side. If Nov call expires worthless then you have Jan call for less. If Apple gets above 180 before Nov call expires then your profit will be very small. I'd close the spread if price gets to or slightly above 180. You'll lose if Apple goes down, but the loss is limited to the initial costs. I did this 2 weeks ago, the stock is more expensive now. I paid about $3.7 per share for the spread ($6 for Jan - $2.30 for Nov).
I really don't think Apple will be going down, so although I appreciate your reply I wouldn't want to sell a Nov Call. I will keep that strategy in mind for other options in the future though. Any ideas on why the Nov calls over 200 are the only calls that have actually gone up when the stock has dropped and all other calls have dropped? This is very perplexing to me.
I don't think AAPL goes down either but the point to sell Nov call is to minimize time decay. Jan 180 call is out of the money so it's price is all time premium. You'll lose it all by Jan no matter what the stock price will be. The time premium just decays, period.