A strategy idea for options trading investors.
This Week�s Weekly Option Trade from Stutland Volatility Group
Overview:
Apple (NASDAQ: AAPL) has been dragged down with the rest of the market. Still, if you want to be in Technology, there are not many better companies and surprisingly, AAPL is still a decent P/E ratio buy. This play is a bet using Weekly options that AAPL�s stock price will not go below $320 through next Friday. With a deal on the way in Greece this morning, the market could hold-up and we could get back on track.
SPREAD TEMPLATE
DATE:���������������������������������������������������������� June 17, 2011
STOCK/INDEX:���������������������������������������� �� AAPL
STOCK PRICE:�������������������������������������������� 327
OPTION PLAY:��������������������������������������������� Sell Put Spread
BUY/STRIKE/MONTH/PRICE:���������������������� 1 June 24 expiry 305 put @ 1.10
SELL/STRIKE/MONTH/PRICE:���� ���������������� 1 June 24 expiry 320 put @ 3.00
NET COST:��������������������������������������������������� $3.0 � $1.1 = $1.90
STOCK COST BASIS
BREAKEVEN:����������������������������������������������� 320 � 1.90 = $318.10
MAX PROFIT:����������������������������������������������� $1.90
MAX LOSS:��������������������������������������������������� Limited = 320 � 305 � 1.90 = $13.10
TRADE COMMENTARY: Bullish put spread. Limited risk and reward. This strategy reduces upfront cost due to the premium received from the short put. The long put reduces assignment risk. The maximum gain is the premium received which is likeliest if the stock price stays steady or rises. The maximum loss is capped by the long put.
** Always remember, one option contract is equal to 100 shares of stock.
Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.
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