I consider overnight spikes of 500% as going to infinity. Yes, there have been a few stocks that have done that, and I'm sure there were people short calls and also short the stock. I don't have the tickers because they were bought out, and aren't listed anymore, but I do know that it has happened to a few stocks before in the last 20 years.
I would consider this the closest to going to "INFINITY" as one could get, at one point Volkswagen was valued greater than Exxon. http://online.wsj.com/article/SB123125518158857415.html "But Mr. Merckle lost hundreds of millions of euros last year in misplaced stock-market bets, said people familiar with the matter. Much of the loss was tied to short positions in Volkswagen AG, in which he wagered that the stock price would fall. Instead, it skyrocketed late last year in what market participants have described as one of the most dramatic short squeezes ever. In a short squeeze, investors who were betting against a company are forced into the market to buy back stock after the price rises."
" January 26, 2012 2:35 pm Appleâs $100bn reserve ripe for spending By Chris Nuttall in San Francisco http://www.ft.com/intl/cms/s/2/2c1c3c1a-47f0-11e1-b1b4-00144feabdc0.html The rate of cash generation is also accelerating, forcing the management and board to address the issue. In the last quarter, Apple was adding cash to its coffers at a rate of more than $1bn a week. At that pace, Apple should have already crossed the $100bn net cash mark this month after finishing 2011 with $97.6bn in cash on hand. On its earnings call on Tuesday, Peter Oppenheimer, chief financial officer, said the company was âactively discussing uses of our cash balanceâ but had nothing specific to announce as yet. âIn the meantime, we continue to be very disciplined with the cash and are not letting it burn a hole in our pockets,â he added. " " Appleâs Cash Reserves Could Reach $146 Billion By The End Of 2012 Posted in Apple on 14/09/2011 by J. Glenn Künzler http://www.mactrast.com/2011/09/apples-cash-reserves-could-reach-146-billion-by-the-end-of-2012/ "
To foresee is to manage! " http://en.wikipedia.org/wiki/Reinsurance It is important to note that the insurance company is obliged to indemnify its policyholder for the loss under the insurance policy whether or not the reinsurer reimburses the insurer. Many insurance companies have experienced difficulties by purchasing reinsurance from companies that did not or could not pay their share of the loss. (These unpaid claims are known as uncollectibles.) This is particularly important on long-tail lines of business where the claims may arise many years after the premium is paid. "
It's not likely AAPL's going to get bought out, so you don't have to worry about that. I'd worry more about a forced liquidation by your broker if vol spikes. You could get taken out involuntarily and the calls might still expire worthless.
Assuming this strategy, current price of exit is $2.29 which is a loss of approx. $18,000. If market continues to rally, this could get ugly. Or op could get lucky and they expire worthless and he makes a few thousand dollars. I believe if the SPX rally continues ( I have no idea if it will ), that SPX can go to 1370 area and AAPL can easily go to $500 in that scenario. $500, depending on what day it hits ( affecting time premium ), would be minimum $265,000++ loss. Good working example of why selling otm near month options is not free money as many believe.