Help setting up a new position

I am looking at a long call on AAPL using TD Option View 360 to forecast, I am seeing something that looks strange.

I have setup the following theoretical positions all AAPL Long Calls

270
260
230
200
170

What is strange is that the returns are greater looking at %Yield considering a price of 190.

What am I missing here?

Is there a better tool for comparing simple Long Call positions with realtime data?

Thanks…

 

I'm not sure what that sentence means exactly, but if you're assuming the price of AAPL will go to 190 and comparing the theoretical returns of long calls at all those strikes, there will be one strike somewhere in the middle that has the greatest percent return.

If you take a very low strike, your percentage return will be low because you pay a lot of intrinsic value for the call and that dilutes your return.

If you take a very high strike, you have a minuscule delta and not enough gamma to make up the difference as AAPL rises. In an eXtreme OTM case, time decay will outpace the stock's rise and you will never gain at all.

Logically, the maximum return must be somewhere between those two eXtremes.

Interestingly, when calls with strike A and calls with strike B have the same percentage return, they will also have the same percentage return as the A-B call spread. Consider that as an alternative investment.

 

I assume these are the December calls.

If you buy those calls and AAPL hits 190 tommorow then the 270 calls would probally pack the most punch. If AAPL hits 190 at expiration then the 170's would make money and all others lose.

 

What I meant by strange is that analyzing the following hypothetical positions over the entire 42 days the 270 LONG CALL has best return %Yield of all the positions below. Keep in mind that my bet is that AAPL goes ballistic before MID JANUARY. Is it coming out this way because I am expecting a large gain? What might I be missing?

270 – At 190 +300%
260
230
200
170 – At 190 +125%

forex-forex They are JAN calls.

Thanks for the help.

PS: I haven’t used OptionVue but TD’s Options 360 looks good.

 

I'm not sure what exactly you're missing, but I can tell you for sure that a Jan 270 call won't give you a positive return on a stock that "goes ballistic" up to 190 in mid-January. That option will have a week left to trade, and it definitely won't have more time premium than it does now.

A lot of software is garbage in-garbage out, so you should check your inputs. For example, did you just crank up the stock price to 190, or did you also adjust the time to expiry?

 

Funny, I am a software engineer, so yes I believe you have just hit on the issue, Theta and Days to Expiration, which is exactly why I joined this forum.

Thanks…

 

This EliteForum is very good and you will learn a lot. I suggest you study the option chains at Yahoo Finance, the quotes are very accurate and good for paper trading. Just watch the options and see how they move compared to AAPL.

AAPL January 2008 option chain Expires Jan. 18, 2008

Also study credit and debt spreads and stay away from any naked short option positions

 

42 days? As in trading days? There are 60 days remaining until January expiration.

If AAPL is 190 in mid January, the 3 highest strikes will be worthless. The 200 will have some remaining time premium but it will have lost a chunk of its value. The ITM 170 call will have a nice gain.