The Striking Price column talks about something we blogged about earlier this week – the expansion of weekly option expirations out as far as five weeks in the future. The term he uses is Shorties Options, but whatever you call them, shorter dated option volume has taken off like gangbusters the past couple of years. The expansion of expiration dates is sure to add more flexibility around trading short term outlooks for indexes, stocks and ETFs.
Options Action –
The discussion immediately turned to Apple and of all things was the first stock recommendation (AAPL – 527.68). Based on Friday’s price action with the stock managing to close above 525.00 and cheaper valuation the guys have a bullish recommendation on the stock. The actual trade was selling a put spread. Looking out to December they are selling the AAPL Dec 520 Put at 21.00 and buying an AAPL Dec 510 Put at 17.00 for a net credit of 4.00. As long as AAPL holds the 520.00 level into December expiration the net result is a profit equal to this credit received. The worst case scenario is AAPL below 510.00 at December expiration which would result in a loss of 16.00.
The second trade of the show was on Ford (F – 10.50) and was also bullish with the thought the stock may make its way to the 13.00 level in the near term. Based on this outlook buying a call spread was recommended looking at the February expiration dates. The trade was specifically buying a F Feb 11 Call at 0.40 and selling a F Feb 12 Call at 0.15 for a net cost of 0.25. With F over 11.25 at February expiration the trade makes money up to 12.00 where profits are capped at 0.75. It was noted that the timing of the trade was specifically out to February to capture the next earnings release expected from Ford in late January.
Also, a big thanks for Sean Knudson, the Options Institute intern from last summer and a knowledgeable guy on VIX for posting four blogs review VIX and Volatility trading last week.