Boca_Bobby Basics

[boca_bobby]

Right now I am holding just Feb $220/CALLS for AAPL. I am pretty bullish on AAPL and think that after the new tablet is introduced, we should fly.

Depending on your authorizations, you may want to sell PUTS to help finance your purchase of AAPL CALLS. There is two ways to do this.

1.) Naked - Sell the $195/PUTS. Take the premium received and use it to cover some of the cost of the $220/CALLS. This is the most risky play so I would keep some dry powder on standby just in case you need to quickly buy the PUTS back. This would only happen if the bottom falls out and AAPL tanks.

or

2.) Sell a Spread using PUTS. This is where you might sell the $200/PUTS and buy the $180/PUTS. You will still have money left over from this sale. We would then buy the $220/CALLS alone or you can also sell some $230/CALLS to reduce risk even more.

Option #2 is a little more advanced and may need to be explained even more. Let me know if I have you totally confused. If so, I will discuss spreads a little more and how we can use it to our advantage for this play.

Straddle are great but are only good if you believe we are going to have a huge move. You really need enough of a move to cover what you paid for the leg that may expire worthless. You state that one leg cost $3.90 and the other costs $3.95. Together this adds up to $7.85!

Do you honestly believe that AAPL has a chance to run to $237.85 or higher before Feb expiration? Or if AAPL tanks do you think it goes below $187.50 before the Feb expiration? Because these are the #'s that are break even on the contracts you prescribe. Personally I think that's a tall order.

Have a great weekend!