The Weekend Review is a little behind schedule this week as I spent all day Saturday in New York at the offices of The Street and Options Profits teaching over 50 students how to trade an outlook on the S&P 500 using a variety of methods. The class included myself, Mark Sebastian of OptionPit (and CBOE Blog contributor), and Jill Malandrino (who you should be seeing more of on the CBOE site in the near future). It was a great event and we plan on following up this June in Chicago switching the focus over to the VIX for a full day.
Barron’s Striking Price article talks about Apple (AAPL – 596.05) and the disappointments some may have had that the company did not split shares and make it less expensive to buy a round lot of 100 shares of the stock. Based on Friday’s close to buy 100 shares of AAPL would run $59,605.00 plus commissions. Steven Sears discusses getting long exposure to AAPL shares for $37.50 ($3,750) through initiating a bullish spread using call options. The spread would buy the AAPL Jan 2013 600 Call and sell the AAPL Jan 2013 700 Call with the result being a net cost of 37.50. The result is the ability to benefit from a rise in AAPL between 637.50 and up to 700.00. Profits on this trade are capped if the stock is above 700.00 next January, a partial loss would result between 600.00 and 637.50, and a complete loss would occur if shares are under 600.00 at expiration. As a side note, based on the Friday close this trade is a little cheaper than when the article was completed, with the AAPL Jan 2013 600 Call offered at 67.00 and the AAPL Jan 2013 700 Call bid for at 30.75. With those prices the cost would be 36.25.
Options Action –
During the opening segment the guy discussed the overall market and everyone seems to continue to be bullish. It was noted that the positive breadth of the market seems to be expanding even with the market looking a little toppy. The consensus seems to be that the rally is healthy and the rise should continue. Time will tell.
The first stock specific recommendation was a bullish one on Bank of America (BAC – 9.85) in the form of a risk reversal. The trade buys a call and sells put as well. This trade buys a BAC May 10 Call for 0.55 and sells a BAC May 9 put for 0.40 the net cost of this trade is 0.15. The result is the obligation to buy shares at 9.00 upon May expiration and the right to buy shares at 10.00. You have the obligation to buy on a dip or participate in a rally. This trade does involve a naked short put which may not be appropriate for all traders.
The second recommendation is a bearish call on Lions Gate (LGF – 14.53) which has been on a bullish tear as of late and may be overdone. The trade is a put calendar selling the LGF Apr 13 Puts at 0.60 and buying the LGF May 13 Puts for 0.90. The net cost of this trade is 0.30 which is also the maximum potential loss of this trade as well. The goal is LGF close to 13.00, but not below at April expiration and then at lower levels after April expiration into May expiration.
Finally – here’s a peak at me in action on Wall Street this past Friday.