AAPL - Earnings this Monday October 20. Buy OTM Oct24 calls on Monday

[FXforex]

How does your long option do when the underlying doesn't move? What if it moves against you?

No problem ..... I am prepared for the maximum loss of $248 and I then will move on to the next trade.

Please compare to the same long option in a vertical.

OK ..... Below are two Debit Spreads (Verticals). One with the same long option as in my position and one with the 99.00 strike, both positions have the short option at my price target after earnings.

• AAPL at $97.67
• Buy 2 AAPL Oct24 100.00 Calls at $1.20
• Sell 2 AAPL Oct24 105.00 Calls at $0.23
• Maximum gain $806.00 (commissions not included)
• Maximum loss $194.00 (commissions not included)

• AAPL at $97.67
• Buy 2 AAPL Oct24 99.00 Calls at $1.57
• Sell 2 AAPL Oct24 105.00 Calls at $0.23
• Maximum gain $932.00 (commissions not included)
• Maximum loss $268.00 (commissions not included)

 

[jimmyjazz]

Nice dodge. I asked you to compare your long call to a vertical if the underlying DOESN'T move up, as well as if it moves down. Go ahead, do it to humor me.

 

[FXforex]

Nice dodge. I asked you to compare your long call to a vertical if the underlying DOESN'T move up, as well as if it moves down. Go ahead, do it to humor me.

Not dodging jimmyjazz ...... That's how I interpreted your question. How about posting an example so that we are on the same page?

 

[convexx]

I don't like credit spreads because of the poor risk/reward ratio, what strikes do you have in mind? The spread below has about the same risk as my long position, but the reward sucks.

• AAPL at $97.67
• Sell 1 AAPL Oct24 98.00 Put at $2.27
• Buy 1 AAPL Oct24 94.00 Put at $0.99
• Maximum gain $128.00 (commissions not included)
• Maximum loss $272.00 (commissions not included)

Even with high IV the risk/reward ratio for credit spreads sucks.

The R/R sucks as you say due to the strike width exceeding the implied vola for the duration of the hold. You can't buy protection and expect it to be cheap.

The 95/98 call backspread is only eighteen cents here. 18 cents buys you all the upside you can imagine...

 

[FXforex]

The R/R sucks as you say due to the strike width exceeding the implied vola for the duration of the hold. You can't buy protection and expect it to be cheap.

The 95/98 call backspread is only eighteen cents here. 18 cents buys you all the upside you can imagine...

But if AAPL Tanks? :eek:

• AAPL at $97.67
• Sell 1 AAPL Oct24 95.00 Call at $3.80
• Buy 2 AAPL Oct24 98.00 Calls at $2.00 ($4.00)
• Premium paid $20.00

 

[convexx]

But if AAPL Tanks? :eek:

• AAPL at $97.67
• Sell 1 AAPL Oct24 95.00 Call at $3.80
• Buy 2 AAPL Oct24 98.00 Calls at $2.00 ($4.00)
• Premium paid $20.00

You really need to quote the legs? Risking $318 at 98. You want to buy a $5 box for $3. We all do. Unlimited upside. Is Apple going to rally more than $3? Dunno, but then I don't take stupid binary risks into earnings.

I am not recommending the backspread, but I think you've thrown away enough premium.

Buy the 98C and be done with it. You act as if this is complex. You're trading gamma for premium. When in doubt -- buy the ATM.

 

[jimmyjazz]

Not dodging jimmyjazz ...... That's how I interpreted your question. How about posting an example so that we are on the same page?

I'm specifically asking you to address the situation where the underlying doesn't move for the duration of the trade. Compare the long call to an ATM or ITM (debit) vertical or OTM (credit) vertical. Which is "better"?

 

[newwurldmn]

I'm specifically asking you to address the situation where the underlying doesn't move for the duration of the trade. Compare the long call to an ATM or ITM (debit) vertical or OTM (credit) vertical. Which is "better"?

His view is that AAPL will rally past 105. His view is that AAPL will exceed it's implied move. He believes that the probability of AAPL being stagnant or moving down is lower than what the market is pricing.

With that, why are you advocating he put on a structure that doesn't fit his view?

 

[jimmyjazz]

Because he consistently makes blanket statements about verticals having a poor risk/reward ratio, without any allowance for "view". He counsels people that they are bad trades, period. Forgetting for the moment that one's personal style and risk tolerance should heavily inform one's method of trading, I just think it's irresponsible to make such sweeping statements of fact and then advocate what amounts to casino gambling as a better approach to trading. Better for HIM, sure, but by no means is this a "one size fits all" world.

I have never said it is -- I have my own issues with verticals, mostly related to timing -- but FXFX will drive his dogma into every thread he posts in, over and over and over. I don't think he has a fucking clue, and I'm gonna call him on it.

 

[FXforex]

You really need to quote the legs?

"Sell a put spread", "vertical", and "95/98 call backspread" are easier to visualize when I quote the entire position with strikes, expiration and the bid/ask. Too many posts on ET deteriorate when a position isn't clearly defined.

Risking $318 at 98. You want to buy a $5 box for $3. We all do. Unlimited upside.

I don't have a clue what you are talking about.

Is Apple going to rally more than $3? Dunno, but then I don't take stupid binary risks into earnings. I am not recommending the backspread, but I think you've thrown away enough premium.

I don't consider this to be a binary risk into earnings or throwing away premium.

• Calls are only 3% OTM
• 1 week to expiry
• High profile tech stock
• Earnings on Monday

Buy the 98C and be done with it.

I bought the 100C with a market order, can't get more "done with it" than that.

You act as if this is complex.

I'm not acting as if this is complex. I only made two posts about my trade, the Original Post with my intent of entering a trade, and one day later the Update Post with details on the actual trade, both posts are very brief.

All other posts of mine have been answering questions. When someone suggests a "vertical" or "sell a put spread" without providing the strikes and bid/ask then the answer can become complex when I have to guesstimate the strikes out of many choices and dig up the info myself. More details in the question will result in a more precise answer.

You're trading gamma for premium. When in doubt -- buy the ATM.

I will consider that in the future.