Murthy,
I did think what would happen if AAPL goes down. So first exit strategy was that if I lose 50% I will close my position. Ofcourse I would have to take 50% loss in that case.
My thinking was if AAPL does not reach 270 then I will collect whole premium for May call and then will sell again June 270 call to get some more premium in that way I will offset some of my option price. And I will still sell my initial 260 call when price of 260 call drops 50%. So I won't have to take whole 50% loss because I will still keep premium I collected by selling immediate month calls.
Now I am not saying I was very sure about whole strategy as I am very new to options but I am going to pay attention to time decay, volatility movement and option price movement. So potentially I can still lose some money but I want to learn few things and virtual money don't really get me into the trading gear. So I had to take some risk to learn and understand whole thing.
And you guys are great help.
Thanks,
Vimal
--- In OptionClub@yahoogro
>
> Vimal,
>
> It doesn't matter when you bought/sold them. What matters is the capital you
> have at risk! If you buy stock, if it goes up you make money and if it goes
> down, you lose - simple and obvious. However, in options there are other
> ways you can get hurt, which as Chris mentioned is theta decay and as
> Michael mentioned in a separate thread, with theta comes vega (volatility
> risk).
>
> Don't get me wrong and I am happy for you - but you got lucky. Your
> statements make we a little "worried" as they are a cause for concern. You
> are only thinking about upside and not about the downside. Have you thought
> what would happen if AAPL closes at 260 or below in July? Your break-even is
> $755 and everyday your long call is losing $8 because of theta decay.
>
> The current value of your spread is $12.53 each.
>
> You didn't think AAPL would go to $270, but now that it is there, you think
> it is going to go higher ... see a trend :-).
>
> Ok - my guess about you taking an Optionetics course was wrong - so you are
> already ahead :-).
>
> Murthy
>
>
>
>
> On Fri, Apr 23, 2010 at 9:01 AM, vimalbpatel@
> vimalbpatel@
>
> > Hi Murthy,
> >
> > The reason I did not give exact price is that I did not buy and sell calls
> > as a same order.
> >
> > $260 call was bought for $1010 few days before I sold May $270 call for
> > $255.
> >
> > So If I were to close the position, I would make some money but not as much
> > as I would if AAPL closes around 270. Now as Chris said, AAPL can
> > consolidate a little and that will make 270 call go down as premium will
> > decay much faster in next few days.
> >
> > The reason I don't want to sell July 270 call is I don't have much
> > experience in options and if AAPL keeps going up, it will make me unhappy as
> > July expiration is far away.
> >
> > In case AAPL goes above 275 then I would rather roll strike up say buy July
> > $270/280 call and sell May $280/290 call to offset some price.
> >
> > What do you think about this?
> >
> > Thanks a lot for your replies. No I didn't attend optionetics seminar. They
> > are really expensive for my taste. I did read Options Course though.
> >
> > Regards,
> >
> > Vimal
> >
> > --- In OptionClub@yahoogro
> > >
> > > Vimal,
> > >
> > > I appreciate your explanation, however you still haven't given the prices
> > at
> > > which these options were bought/sold.
> > >
> > > The reason I was specific on the prices is I wanted to see if there was a
> > > volatility crush on your July options as the earnings came out recently
> > > (usually only the front month are most affected, but you see some
> > increase
> > > on the other months too).
> > >
> > > Are you familiar with a roll? To capture the profit, you can roll your
> > May
> > > 270 call to July 270 - thus making it a vertical. For this, I would need
> > to
> > > know how much you paid for it in the first place. This roll which
> > involves
> > > buying your May 270 back and simultaneously selling a July 270 (do it as
> > > "sell a calendar", in most brokerages) - this would fetch you about $6.77
> > > right now and locking in a profit. THIS IS JUST ONE option to consider.
> > >
> > > You will still hold July 260/270 vertical spread. Whether this makes
> > sense
> > > or not is determined by what you paid.
> > >
> > > If you don't do anything and AAPL closes above 270, then you would have
> > at
> > > least made $10 (close both sides), which may not be necessarily bad
> > thing.
> > > Your 260 call would have AT LEAST $10 of intrinsic value - it will have
> > > extrinsic value too ...
> > >
> > > Let me take a wild guess here - did you recently take an Optionetics
> > > seminar?
> > >
> > > Good luck.
> > >
> > > Murthy
> > >
> > >
> > >
> > >
> > > On Fri, Apr 23, 2010 at 7:46 AM, vimalbpatel@ <
> > > vimalbpatel@
> > >
> > > > Hi Murthy,
> > > >
> > > > My thought process was like this. AAPL was about $255 and I was bullish
> > on
> > > > it. So I wanted to buy July $260 call and keep it until 30 days to
> > > > expiration. I wanted to sell it if my loss is 50% before that date.
> > > >
> > > > Now $270 was far away and thought I can sell May call to collect some
> > > > premium. That was going to offset my option price by about 25% and was
> > > > hoping it would expire wortless or premium will decay in last 30 days.
> > > >
> > > > Now AAPL has moved a lot in last two days. Yesterday about $7 and today
> > 4+.
> > > > I really don't want assignment on this one so I thought I would ask you
> > > > guys.
> > > >
> > > > I am up good amount on my 260 call so one option is to colse the
> > position
> > > > with profit. Which is never a bad thing.
> > > >
> > > > Second option is to close out this position and roll the spread to 270
> > July
> > > > vs 280 May. Which will still give me profit.
> > > >
> > > > So being in the condition I am in, what you guys will do. As I don't
> > have
> > > > much experience, I would like to see how you guys would adjust this
> > > > position.
> > > >
> > > > Thanks a lot,
> > > >
> > > > Regards, Vimal
> > > >
> > > > --- In OptionClub@yahoogro
> > > > >
> > > > > Vimal,
> > > > >
> > > > > When or more importantly for what price did you buy this (diagonal
> > > > > calendar)?
> > > > >
> > > > > What was your thought process in doing this trade BEFORE you put your
> > > > hard
> > > > > earned money into it.
> > > > >
> > > > > There is no risk of assignment - too much time value on the 270 calls
> > and
> > > > > there are no dividends for AAPL.
> > > > >
> > > > > Murthy
> > > > >
> > > > >
> > > > >
> > > > >
> > > > >
> > > > > On Fri, Apr 23, 2010 at 6:17 AM, vimalbpatel@ <
> > > > > vimalbpatel@
> > > > >
> > > > > > Hey guys,
> > > > > >
> > > > > > Very new to options so here is the problem.
> > > > > >
> > > > > > I bought AAPL July $260 call couple of weeks ago and sold $270 May
> > > > against
> > > > > > it. Now price is approaching $270.
> > > > > >
> > > > > > What would you do right now as AAPL is $269 premarket right now.
> > Would
> > > > you
> > > > > > wait two more weeks before you buy back or roll over strike? Or you
> > > > would
> > > > > > buy back right now?
> > > > > >
> > > > > > Did you get assigned three+ weeks before expiration? Because
> > eventhough
> > > > > > price is at strike, option is still made of extrinsic value and has
> > yet
> > > > to
> > > > > > get any intrinsic value.
> > > > > >
> > > > > > Thanks in advance,
> > > > > >
> > > > > > Vimal
> > > > > >
> > > > > >
> > > > > >
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