Russell’s Round-Up – Weekend Review

Here’s quick summary of a couple of sources for good option information that occurred over the weekend –

Options Action –

The first stock recommendation was on a favorite trading stock, Apple (AAPL – 384.62). Although this is probably the most mentioned stock for shorter term trading, the recommendation from the show this weekend is focused on holders of AAPL shares protecting profits using a collar. A collar involves buying a put option and simultaneously selling a call option to help fund the long put. The result is the right to sell shares at a certain price, but also the obligation to sell shares at a higher price. To protect against a bearish move in shares the recommendation is the buy an AAPL Dec 370 Put for 10.10. In order to cover some of the cost of this protection an AAPL Dec 400 Call could be sold for 8.10. The net result is a cost of 2.00 and protection against a move below 370 at December expiration. Of course profits above 400 are also sacrificed with this structure. 

 

The second recommendation involves Home Depot (HD – 38.06) which reports earnings this coming week. This recommendation is about as direct as it gets. There is a bullish outlook for shares of HD into earnings so buying a Nov HD 39 Call for 0.35 is suggested. It was noted that shares appear to be prepared to breakout to the upside and earnings may be the catalyst to push the stock to that point. 

Barron’s

Steven Sears discusses how the use options in a tax loss selling strategy. He discusses the wash-sale rule, which involves losing the capital gain tax loss on a stock that is sold for a loss and then repurchased within 30 days. If the stock is bought back, then the benefit of taking a capital loss on the sale is gone. He suggests buying a Jan 2013 LEAPS Call on a stock you would like to sell and then 31 days down the road selling the stock for you loss. All the while, you never lose control of the stock.