Hi Guys - My first post and a newbie to option investing. I receive decent quarterly bonuses and looking to put this one to work for me ASAP. As of now I'm looking at the Jan 2014 750 calls and each contract is going for about $3,600. I'm looking to buy 3. Do you have any advice? I'm super bullish AAPL and am comfortable having the 2014 date. Thank you.
So... the stock's headed to $800? Wow! Do you realize that some of that $3600 will be lost along the way even if the stock goes up? It'll gain some and then also lose lose... if it crawls to $750 in the next year then you will make money but not without much agony. I suggest going shorter term- say 6 months out...
Just go naked short like that other guy did, selling premium is guaranteed riskless profit...its amazing Note: Do not go naked short
Rather than risk a worthless call option buying 3 atm is most likely a safer bet. I like and own Apple, but I don't know if it can reach even $700 by January 2014. Pay up for the atm calls, and save the inevitable theta decay. It'll make the position easier to stomach because it'll be more correlated with Apple's direction. Also note this is a lower high as long as NQ doesn't break 2650. I think it'll go down to somewhere above 2575 where it'll set a higher low, and apple should go with it. Also, so few analysts have targets that high, so from that perspective while the calls may look cheap, they certainly aren't mispriced which is why I'd be recommending atm leaps rather than far otm. BTW, this call made a lot more sense 6 months ago. Maybe see what a small size atm option position would have cost back then and see if that's the profit you'd like to make. Most of the price histories aren't available, so while that may be out you might have some options expiring soon that you can see what buyers 6 months ago made, and how bullish they were. If you look at open interest there's probably extremely few at $750, so I just think maybe buy 2 than 3 atm than risk otm worthless options. Judging by open interest, most people expect $600, and those are selling for $77. Buying one of those is safer and closer to market expectations than the relative few out at $750 on January 18 2014's. I've only seen two lower highs this year, and both have been losers going short. If the market does not break this high be aware that it will probably keep going down and who knows when it'll ever be up to this 10 year high again.
Since you're new at this, I'd slow down and read to excess before you burn 10 large. There will be plenty of trades you can make in your young life with that money. Options without study are a siren song. Strap yourself to a nearby mast.
The better play is to give himself a $55,000 position for a $7,700 call option, than a $10,500 option for a $225,000 position. But, hey! Thank god securities are logarithmic! For him to profit on the first Apple would have to hit ($225k+$10.5k)/300=$785 per share, and I don't see that happening to go in the money by then. The earlier post was a rough estimate from the per share target for the trade to be profitable at, say, around $800, but this play is too aggressive for newbie options traders. I doubt making $4,500 at $800 per share isn't just harder to do but you'd make the same return on the $55k position approximately that same time period, so the money's easier atm, and if he wants to go out I think $600 has a lot of open interest, but to make 45% on 10k after 2 years basically is really not worth the risk. Hear that OP? It sounds like you want to be right more than you want to make money. Even if Apple goes to $785 only then would you even start to make money. And if it goes to $800, you'd only net $15 on the option, making it a net gain of $4,500 after 300 get called at $800 that is the value of the options at $50. It's better to make the ATM play by far in this scenario. The option strike is way too far otm, and even if you're right the payoff doesn't seem to be high enough to warrant losing all $10k.