Entered my first deep ITM credit spread on apple today.

Amun Ra

Amun Ra

Never did anything like this before, but I thought I'd try it out. Created 4 monthly Oct $155/160 put spreads. Got in at $4.75 and collected $1900 in premium. Max risk is $100. I actually wonder if I could've got an even better price the way the stock was moving today and maybe even get it at $5 for a risk free, can literally not go tits up, trade.

Here's to hoping for a good iphone launch.
 
Are you aware you're betting $100 on AAPL price going to $160 by October 16th?
Could've bought a call for $132, which could move quite a lot if/when AAPL starts recovering. Spreads are moving quite slowly in comparison.
 
guru said:
Are you aware you're betting $100 on AAPL price going to $160 by October 16th?
Could've bought a call for $132, which could move quite a lot if/when AAPL starts recovering. Spreads are moving quite slowly in comparison.
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Yeah, I probably could have, but the $160 calls wouldn't be worth anywhere near $1900 even if the price went to $160 by next week. At the money calls on apple are only worth $10 six weeks out. At the money calls just a week out are only about $4.
 
Amun Ra said:
Never did anything like this before, but I thought I'd try it out. Created 4 monthly Oct $155/160 put spreads. Got in at $4.75 and collected $1900 in premium. Max risk is $100. I actually wonder if I could've got an even better price the way the stock was moving today and maybe even get it at $5 for a risk free, can literally not go tits up, trade.

Here's to hoping for a good iphone launch.
More...
$1900 premium but $100 risk - doesn't make sense for a spread. You sure it isn't more like triple the premium in risk?
 
The $100 risk/$1900 max profit makes sense, for a DITM bull put (credit) spread, but the trade might not. AAPL has to rise about $33% in 2 months (2 worst months of the year) for the full credit. There is a chance it can, but it's long odds. Think of it like this, 1 time out of 20 it makes $1900. 19 times out of 20 it loses $100. That's overly simplistic, but you get the idea.

SanMiguel said:
$1900 premium but $100 risk - doesn't make sense for a spread. You sure it isn't more like triple the premium in risk?
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SanMiguel said:
$1900 premium but $100 risk - doesn't make sense for a spread. You sure it isn't more like triple the premium in risk?
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I know...took a minute for my head to wrap around it so let me explain.


In a $5 credit spread, the most you can lose is $500 - premium you receive. I bought 4 so the most I can lose is $2000 - premium. It doesn't matter what the price of the stock or the premium is. It's always $5. Because my credit was $4.75 per contract, my max risk is .25.

Just to break down the actual costs of this trade I'll give you the numbers.

For the 4 contracts I paid a total of $14,893 for the $155s and I received $16,793 in premium or $37.2325 to buy the puts and $41.9825 to sell the puts.

But if you don't believe my math, this might prove it for you.

apple.png
 
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