Two Option Plays - Help?

[jws43yale]

I have not done much option trading in the past and wanted some advice on how you would structure these two plays. Apple is supposed to make a new iPod announcement on September 5th. I expect the stock to jump on the new iPod Nano news, but if they announce a full screen iPod the jump will be even bigger. I want to buy a couple of options contracts in anticipation of the jump. What would be the best way to do this expecting to exit the position be the Friday after the announcement.

Second, markets have rebounded on expectations that the Fed will drop interest rates at the September 18th meeting. I am concerned that they may not do this as historically a liquidity crisis should be handled by lending freely but not dropping rates. I want to use some kind of options/futures to hedge my portfolio in case this drop does not occur. Which benchmark or index would you recommend? Also, which was should I go about this?

Thanks.

[NajdorfDefense]

Don't do it, and you don't know what you're doing, so skip it.

[jws43yale]

[ QUOTE ]
Don't do it, and you don't know what you're doing, so skip it.

[/ QUOTE ]

I do know what I am doing when it comes to investing, but have never bought or sold options before. AAPL has a September call at $140 which was selling for $1.50 earlier which I am thinking of buying sometime this week.

[skindog]

In the AAPL case, you could buy 140 calls and sell 150 or 155 calls to offset some of the cost of the 140's. This is the simplest way to reduce risk. Of course, you are limiting yourself to a maximum profit of... 10-(2.55-.70)... $8.15 on a $1.70 investment.

One word of caution based on what you said... plays around announcements/earnings releases/anything of that sort are ridiculously risky because not only do you have to estimate what the company is going to do, you have to have a good grasp of wall street's expecations and their reaction to the news you expect... and whether that expected news isn't already factored into the price. It took me one or two HUGE burns before I realized that I'm much better at spotting solid long term investments than pinning down the whims of an often idiotic, very short term focused market.

Hope that helps.

[CrushinFelt]

[ QUOTE ]
[ QUOTE ]
Don't do it, and you don't know what you're doing, so skip it.

[/ QUOTE ]

I do know what I am doing when it comes to investing, but have never bought or sold options before. AAPL has a September call at $140 which was selling for $1.50 earlier which I am thinking of buying sometime this week.

[/ QUOTE ]

Looking for a 10% pop in less than a month in a market that has diminishing faith about the consumer? :x

Don't get me wrong, it's probably not a bad bet because if people start to get back into the market before Bernanke's cut (if it happens) AAPL will be one of the first stocks that will be bought.

And I definitely would advise what the other person suggested which is to sell 150s or 155s.

[Chrisman886]

The premium on these options will be high to account for the volatility. You may buy some calls, the stock will jump on the announcement, but the calls will decrease in value because the market was looking for even more volatility. You really don't sound like you know much about this market, so I'd suggest just staying away. Options can be a bad habit to get into if you don't know precisely what you are doing.

[CrushinFelt]

[ QUOTE ]
The premium on these options will be high to account for the volatility. You may buy some calls, the stock will jump on the announcement, but the calls will decrease in value because the market was looking for even more volatility. You really don't sound like you know much about this market, so I'd suggest just staying away. Options can be a bad habit to get into if you don't know precisely what you are doing.

[/ QUOTE ]

if he's long there's no downside aside from the premium. Testing out these markets is fine, and pretty fun. It's not like he's counting on this super strategy as a definite source of income right now. Some people play with play money at first, if he wants to start with some real dough then why not have at it.

[NajdorfDefense]

[ QUOTE ]
[ QUOTE ]
Don't do it, and you don't know what you're doing, so skip it.

[/ QUOTE ]

I do know what I am doing when it comes to investing, but have never bought or sold options before.

[/ QUOTE ]

Right, so don't do it.

[polkaface]

I have a question about this also. The OP (in his 2nd post) mentioned the AAPL Sept 140 call which is now going for 1.85 which makes the BE 141.85. Why wouldn't he want to purchase the 110 Sept Call which has a BE of 130.10.

Thinking about it as I am typing, I am guessing it is about the rate of return the 2 options would give? (Being that if OP is right and his 140 call is profitable he will make 100% for every 2 points over 141 AAPL goes, whereas he will need to get over 150 to make 100% on the 110 call??)

Am I on the right track?

[skindog]

Yes... buying calls closer to being out of the money is akin to getting more and more leverage. For the 140 calls, there is a much higher risk, a much higher reward, and you pay more for the time of the option.