AAPL
AAPL stock Price 204.
STO SC Nov 210 and BTO LC Apr 200 for a debit of 18.5 ( Risk )
PE: ROI 25%
If bullish, roll the short call up and out ( BE: 228)
If bearish : roll the short call down ( BE: 200.5)
If stagnant, Let the short call expire, take profit and short another call
PNC
PNC stock Price =52.79
STO Nov 55 SC
BTO Feb 50 LC
Debit = 4.9 ( Risk )
This is a bullish trade.
PE : 25%
If bearish ( below BE : 51.15 ) roll the short call down
If very bullish ( price > 1 to 2 strike above SC price of 55, roll the SC up )
Posts
question about the AAPL trade:
ReplyDeleteThe risk is 18.4. If we want to have 25% gain, the profit is 4.6. Looking at the risk profile, it seems that the price must be between 208 and 212 around Nov expiration in order to make 25%. Is the window of price too narrow? Am I missing something?
I agree that the trade is a little too bullish. I am bullish on AAPL long term but I believe it will be dragged down by the market during a correction that is imminent. So, we can set the lower BE to 190-195, it will be a better trade.
ReplyDeleteComments by Ted:
ReplyDeleteThe way I look at the diagonal call calendar is to capture most or all the credit of the Nov 210 of 3.6 and sell the Apr 200 LC at the price that can net me the 25% ROI.
If we consider the best of all worlds and APPL reaches 210 on Nov 20th that SC expires worthless. The LC goes up 10 points to 32. Since my CB was 18.5 this would net me 73% return. Since a perfect world does not exist I'll settle for 25%. Sometimes the SC has a higher IV than the LC and you need to exit the trade close to expiration to bleed off the volatility.
AMZN is a good example. Oct 8 the stock was at 95.45 and did a calendar Nov 105 SC 2.6 and Apr 95 LC 12.2 (CB 9.6). On 10/23 the stock gapped to 111.78 and STC the spread at 13.25 for a 38% ROI. Today AMZN closed at 124.64 and even though this is a 12% increase in the stock price the spread only increased about 5% (13.5). The SC has 5% more IV than the LC. So it certainly is possible to get a return of 50% if you hold unto it close to expiration and if it doesn't reverse.
These examples are extreme in the bullish direction so if stagnant or bearish we would need to work hard to just break even. That's why I do calendar on breakouts determined by charts. Also the longer out in time you place the LC the better is your chance for your primary exit. We had a correction today but the S&P did not violate its 1050 support so we can continue to look at calendars.
Ted,
ReplyDeleteDid you adjust your AAPL trade?