Post deleted by Mat Sklansky

[DcifrThs]

[ QUOTE ]
I have seen that apple is up 40%+ in the last 60 days. They are on the news all the time with the I-phone coming out. My friends who sell Cell-phones say that the technology they show on the adds will be tough to live up too. What are the chances that when this comes out it is a dissapointment and the stocks drops 10-20% or more. The stock is at 122 should I be looking at 120, 125, or 130 puts or higher or lower if I believe the above to be true. Any thoughts or opinions?

[/ QUOTE ]

option pricing is fairly efficient, however, there are definitly opportunities. if you think this is one, go with the one that costs the least. it still stands to make you a pretty penny.

just make sure sales reports would be available to the mkt before expiry.

120 i think would be the best out of those 3.

NOTE: i am not a financial advisor and this post does not make me responsible for any losses you should incur.

Barron

[mrbaseball]

I haven't looked much at apple but I prefer spreads to outright options. If you have a target in mind (say down 10-15%) buy that put calandar. For example the 105 strike. Sell the July or August and buy the October (or possibly August if you sold July). If the stock makes a move to 105 this will work well on 2 counts. The earlier to expire "sold" option will have greater time decay and the longer to expiration "bought" option will benefit from the volatility pop a move like this would almost definitely cause.

Spreads are less expensive and have less risk which means you can do more of them. Even if nothing happens the spread has a chance to make money or break even while just buying puts demands a down move with force to be profitable. However if you do get a down move with force the outright puts are more profitable but it's because they are riskier. A rally is obviously bad for either strategy but the spread probably holds it's value a little better and longer to the upside.

[DcifrThs]

could you go through that one more time please. i'm not as experienced trading options but i like the cut of your jib.

are you saying to write an october put at 105 and buy a july/august put at the same strike price?

working this through out loud, you gain the premium (small) from the sale of the long dated option (but the price would rise as implied vol jumped w/ that kind of drop if it happened as the intrinsic value passes to the buyer).

on the flip side though, as long as the move happens before expiry of your purchased option, you make money from that trade.

but look what happens between expiry of the long and expiry of the short... you now have the exact opposite of what you want, you're naked short something you think will fall (albeit not likely below 105). i much prefer the idea of being positively exposed to volatility, not negatively so.

so now what is the most efficient way to expose oneself to the OP's opinion (that apple will not deliver on the hype when the #s come out).

thanks,
Barron

PS- i may have misinterpreted your post so please correct me if i did. you used lingo i'm not familiar with so bear with me.

[thehun69]

I'll help you out here. He is saying that you SELL the short term and BUY the long term, with both puts being a fair amount out of the money. Buy doing this, it is as if you are buying the long term puts at a discount as you are collecting a premium from the short term option. So, now what happens if it goes down and it doesn't make it below 105, then the short expires, you still hold the long term option and if it should go past 105, you are in the money (not necessarily profitable depending on how much this position cost you overall, we don't know that without using some numbers here, but in the money nonetheless and moving to profitable).

I agree that spreads are the way to go when playing options because of the risk mitigation. Where Apple stands now, I wouldn't mind a short on it.

Barron, quick question, in some of the posts that I do see here and on other forums, I constantly see people who do make recommendations with small disclaimers at the bottom saying that they are not responsible. Is this truly necessary? How could you be accountable if someone takes your advice and the stock goes in the opposite direction and they then lose money? You didn't make anyone buy the stock. If a stranger came up to you and said go jump off a bridge and you did it, can your then sue that guy?

THE HUN.

[mrbaseball]

[ QUOTE ]
are you saying to write an october put at 105 and buy a july/august put at the same strike price?

[/ QUOTE ]

No [img]/images/graemlins/smile.gif[/img] Actually I am saying the opposite. You would want to sell (write) the July and buy August or sell (write) the July or August and buy the October. You would want to do this strategy at the same strike price.

Basically you want to short (write) the option strike that you think you are going to in the nearer term expiration. This will maximize time decay if you are correct and the stock does indeed go to the general area of the strike you choose. Buying the later expiration option is your catastrophe protection. The later expiration will profit both from the directional move (assuming you are right) and a probable volatility increase. All the while the nearer term option will be rapidly decaying to possible worthlessness.

But like I said an outright option is more profitable if you are right in your analysis with optimal timing. That's hard to come by though [img]/images/graemlins/smile.gif[/img] The spread has a lot more wiggle room meaning less risk. With a long put only near term strategy you have to go down real soon and real hard or you will wither away. You can be wrong (to a point) or too early with the calandar spread and still possibly make money or break even. The real risk of the put calandar I have proposed would be a slow (or even fast) up move with decreasing volatily. With a fast move (depending on how far) you may still even be able to salvage something if volatility firms. Blowing through the downside very hard could also be painful if it moved too far through your target strike. But these are debit spreads and you really can't lose more than you pay for them. They don't have the unlimited profit potential of an outright option. If the iphone started causing brain cancer and Apple went to zero unhedged long puts would be way better. But in a realistic scenario the spread offers a much better risk/reward situation.

Other ways I would look to play this would be with a long put butterfly or condor. These again would involve picking a general target that you thought had a decent chance. You could also buy put verticals or sell call verticals or even both if you were convinced there was no upside [img]/images/graemlins/smile.gif[/img]

[thehun69]

Hey Baseball,

Considering the move that OP is expecting, I don't think a butterfly would be such a good move here, as butterflies would be more appropriate for low volatility events not high ones.

THE HUN.

[mrbaseball]

I agree that I like calandars way better here but if you hit the sweetspot (middle) the butterfly works just fine. But hitting the sweetspot of a calandar is even better. Butterflys and condors would be cheaper though (although even more juice). I much prefer a calandar myself. But if you are looking for a 10-20% break having the long back month volatility is what really would probably work best because there would be huge panic. And if it doesn't break the front month decay sorta keeps you solvent for a while.

I did take a glance at the apple put chain and a -July105 +Aug105 would probably have a fairy narrow target of maybe 102 to 108 (asumming no volatilty pop) the likely volatilty increase would widen that a bit. The -aug105 +oct 105 widens out nicely but you are giving the stock (which all the analysts seem to adore) more time to rally which hurts your spread. To be sure I'd have to run it through my analysis program. But since all the talking heads over at CNBC say you gotta own Apple maybe researching this spread makes sense [img]/images/graemlins/smile.gif[/img]

[DcifrThs]

[ QUOTE ]
I'll help you out here. He is saying that you SELL the short term and BUY the long term, with both puts being a fair amount out of the money. Buy doing this, it is as if you are buying the long term puts at a discount as you are collecting a premium from the short term option. So, now what happens if it goes down and it doesn't make it below 105, then the short expires, you still hold the long term option and if it should go past 105, you are in the money (not necessarily profitable depending on how much this position cost you overall, we don't know that without using some numbers here, but in the money nonetheless and moving to profitable).

I agree that spreads are the way to go when playing options because of the risk mitigation. Where Apple stands now, I wouldn't mind a short on it.

Barron, quick question, in some of the posts that I do see here and on other forums, I constantly see people who do make recommendations with small disclaimers at the bottom saying that they are not responsible. Is this truly necessary? How could you be accountable if someone takes your advice and the stock goes in the opposite direction and they then lose money? You didn't make anyone buy the stock. If a stranger came up to you and said go jump off a bridge and you did it, can your then sue that guy?

THE HUN.

[/ QUOTE ]

last point first.

just for clarification. you don't want to make a reecommendation and somebody to take it seriously as gospel and act on it. it isn't for legal reasons on these forums imo. just courtesy to make sure you aren't going to cause somebody to take a risky position based on your post.

first point, yea that makes much more sense. it didn't seem to be logically correct the way i was stating it.

thanks,
Barron

[mrbaseball]

Here is what I look for when I'm doing this kind of spread. Basically I use technical analysis to try and derive where I think the stock may be headed. Technical analysis has it's believers and naysayers. I am a believer.

Anyway this is a spread I put on last week in Pepsi (PEP). The stock is currently at a support level and in a 4 year up trend. It is currently testing both the trendline and a support area. The oscilators are showing bottoming patterns and bullish divergances. So my thought is that both support area and trendline will hold so I'm hoping for a little bounce in the next month or two.

My play was this. Buy the October 67.5 calls and sell the August 67.5 calls which I did at a 78 cent debit. Which means I paid $78 for each spread. The stock closed Friday at 64.85 and the spread at .80 I consider this a decent low risk play that has a better than average chance of turning a 30-80% profit in the next month or two. Once it gets to a nice level I generally won't milk it and will just take profits. If it breaks the trendline I'll probably get out while the gettings still good. If I am wrong and the trendline gets broken next week I should be able to get out fairly unscathed but if it holds and pops a little I'll make a few bucks.

You can probably do this same kind of analysis on Apple puts. I did glance at the chart and it looks like it has a long way down to any reasonable support levels.

Here is my Pepsi chart analysis. I'm hoping the stock jumps back into the mid April to mid June range. Anywhere between the lower and upper sweetspots should generate pretty good percentage returns. But I head for the hills with a strong violation of the long term trendline. The stock has come off 6.8% since it's high in May. Please note I am not recommending this play just explaining how I look at them and decide whether I want to do them or not. Sometimes they work and sometimes they don't and time will tell how this one pans out. Also note I have no clue about the fundamentals of Pepsi, that isn't my gig [img]/images/graemlins/smile.gif[/img] I do know it's fairly well regarded by analysts but I'm not making this play with any regard to balance sheets or p/e ratios. For me it's strictly a technical play.