Options Trading Ideas – AAPL
November 11, 2014 MarcoTrade
Apple is one of the most amazing and innovative companies ever existed. Their stock has been a fantastic performer since the IPO and as of today there is no reason to believe that the move higher will stop anytime soon. I first invested in Apple in 2005 and I have been in and out of the stock a few times, sometimes using options.
When I believe there are strong fundamentals in a stock and a clear chart pattern that indicates a potential breakout, I like to play it by using Deep in the Money Calls. For those of you that don’t know it, a Call Option is an agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
Using a deep in the money call option we can simulate the payoff of a long stock position with less $ exposure. This is a great strategy if we want more exposure to a stock however we lack the funds to buy a large number of shares.
Apple broke out at $103.84 not long ago and it is now sitting at around 5% above that level at $108.83. It is getting a little bit riskier to get into the stock, however given the strong market uptrend and the solid performance of AAPL stock, we can consider a purchase of the Jan 17 2015 $80 strike call for roughly $29.
If we were to buy 400 AAPL shares we would spend $43,464 at $108.83 per share. With the $80 Jan 15 Call we will only need $11,500 to get the same potential payoff. Obviously, if the stock moves up, our rate of return would be much greater if considered in percentage points versus the purchase of the plain stock.
The exit point for such a trade is for AAPL to trade at $114.80. Our call would be worth $34.8 for a 20% return versus a 5.3% move in the underlying stock.
Categories: Trading Ideas
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