What's with Apple today? Up $18/share

[KTP]

How do you check the time value of an option? Is there a specific tool in optionshouse that displays that info? Or is this a guess based on looking at the difference?

What is the point to selling the 550 call for July (besides financing the 112?) because it looks like increased risk if the stock really shoots up past 590. Closing my position in that scenario would be expensive.

Why do you chose a $450 OTM rather than say a $600 ITM call for Jan? Is it more than just the initial price I pay now and potential profit?

All options have a value. If the option strike is below the current price of a stock then it has intrinsic value as it can be used to purchase the stock at a discount to the current price. The remaining cost of an option above the current price of a stock is called the time value (just represents the value of the time you are granted to lock in the price at the strike price). You can make a pretty good guess how the time value will decline or rise based on the stock price movements, market volatility and actual time decay until expiration.

Selling a 550 July call does partly finance buying the 450 Jan call because currently the 550 call is almost all time value and the 450 call is almost all intrinsic value. There is no risk if the stock shoots up, because when an option goes in the money it loses time value and gains intrinsic value (which is matched by the intrinsic value of the lower 450 option.

That sounds confusing but it works like this. You buy the 450 for $112 and sell the 550 for $39. You pay a total of $73. With apple at 550 the 450 has $12 of time value and $100 of intrinsic value. The 550 has $39 of time value and $0 intrinsic value. If Apple shoots up to $600, the 450 will have at least $150 of intrinsic value and the time value will drop to about $5, thus the option will be selling for $155. The 550 option will have $50 of intrinsic value and the time value will drop to about $20 thus it will be selling for $70. Thus while you lose $31 on the 550 option you are short, you gain $43 on the $450 option. If you sell the whole spread early, you would get about $85. You paid $73, so you made $12, or a return of 16%. If this happens right after earnings you can grab that money and re-invest it in other stocks. If you keep doing this your annualized return would be around 500%.

Thus you can see that it is not a bad thing for the stock to shoot up way past your short strike. You can also choose to hold the spread until July, at which point the $550 and the $450 will be exercised and you get $100, representing a $27 return on your $73 investment in 6 months (not really as good as the above $12 return in less than a month).

[kv968]

Hi guys, just a quick update. I sold it at 15. It went as high as 16.9 after, but alas...
I've been looking at the October 600 call, but wanted it to dip to 28. I missed that window and it is close to 30 now.

Well its trading at 13.40 now so you made out so far. Regardless, you made money and that's always the objective. Congrats.

Your suggestions are no doubt brilliant, but have never done a spread and obviously don't know enough yet, so they leave me confused. I would like to learn, so that some day it can be clear as day to me too. :

Spreads aren't as mysterious as they seem. The basics of it is to buy an option that's slightly ITM or ATM and sell one that's further out. All you want is for the price of the stock to go up to one you sold. It can go through it and you'd be ok but a "perfect" spread is for it to close just below the OTM option you sold since it wouldn't get exercised and expire worthless. So in that instance, the call you bought went up and you keep all the premium on the call you sold.

What I do is usually look for a price that the stock has been having a hard time breaking through on the upside (resistance) and selling the option at that price or a little higher. All you're trying to do with that strategy is lower the price of the option you bought.

How do you check the time value of an option? Is there a specific tool in optionshouse that displays that info? Or is this a guess based on looking at the difference?

Any option that's OTM is ALL time value. For the options that are ITM, in Optionshouse go to the chain, go to the dropdown menu where it says "Format" and set it to "Intermediate". After the bid and ask you'll see "Int" and "Ext" which are the intrinsic and extrinsic value of the option. The extrinsic value is the time value of the option.

Another quick way to do it is if you have a call that's ITM, look at the put at the same strike price and whatever the put is trading at is about the amount of the extrinisic (time value) value of that call due to the put/call parity. And vice versa for a put that's ITM.

What is the point to selling the 550 call for July (besides financing the 112?) because it looks like increased risk if the stock really shoots up past 590. Closing my position in that scenario would be expensive.

KTP answered this nicely. I'll leave all the messy math to him

Why do you chose a $450 OTM rather than say a $600 ITM call for Jan? Is it more than just the initial price I pay now and potential profit?

You have it backwards, the $450 is ITM (which is what you'd buy) and the $600 is OTM (which you'd sell).

Stick with it. You're doing good and its really not that hard. It seems very confusing at first but if you just step back and look at the whole picture it'll make sense in time.

Just keep asking if you have any questions.

[Nika]

Thank you for the explanation guys. I will one day try it, when I get to the point of being comfortable with it and understand all the possibilities where it can go wrong for me. I take risks, as long as I understand what they are and what is the worst possible scenario might be.

I did not get a chance to re-buy 600 October call for 27-28 range So I did not buy it. Maybe I should have gone higher and gotten it at 28.65, that I had a chance to do.

I think it will be a really nice quarter for Apple and I won't be able to take advantage. (I'll just have to work for my money from now on). So now I will be watching the conference call without any stake in it(besides 59 shares of AAPL, but it is just not the same without an option riding on it).

[KTP]

Apple mostly beat on earnings, but the stock is down so you were good to get out if you got out of the calls. For me this is about the best case scenario, as the April $520 calls I am short will be going to zilch soon and the Jan $400 will retain $110 to $120 of value. After April if Apple is still above $500 I will probably sell Oct $530 for $20 or so.

[Nika]

They made 22 billion, beat earnings estimates, the selling price of the iphone went up, meaning more people are buying the more expensive iphones (which is good for Apple, as they make more because the iphones cost nearly the same amount to make for any of them)... but nobody is happy.

It is shown again and again that people treat Apple unlike any other company in the market in terms of their reaction to the earnings.

[KTP]

Apple made 13B profit in one quarter.

A trivia question. Name another company that will make 13B profit in one quarter this year?

[Nika]

I'm looking at the charts and no way this justifies a $42 drop. I think this is an opportunity.

Apple made 13B profit in one quarter.

A trivia question. Name another company that will make 13B profit in one quarter this year?

I give up.
.

[KTP]

I give up.
.

You are correct!

[Nika]

back in at 28.10, 550 Oct. strike.

[KTP]

Nice beat today plus 7:1 stock split.

I am holding a few June $500 calls. I probably just made enough to buy a small car but we will see if the $40 spike in AH holds up.

Do you still have those October $550s?

[Nika]

1 hour ago I was $770 down on a 550 25.85 Oct. call

Have no idea where I'll be now, but it is ITM. That's a relief.

I also sold 8 shares at like $511 or something... and bought a Jan 2016 550 call at 26.

Any guess to ballpark figures?

[KTP]

1 hour ago I was $770 down on a 550 25.85 Oct. call

Have no idea where I'll be now, but it is ITM. That's a relief.

I also sold 8 shares at like $511 or something... and bought a Jan 2016 550 call at 26.

Any guess to ballpark figures?

I would guess the Oct $550 will be worth around $36 tomorrow so you will not be down any.

The Jan 2016 $550 you bought at $26 could go for as much as $55.

Just ballpark figures assuming Apple opens around $565. A good day for you!

[Nika]

I would guess the Oct $550 will be worth around $36 tomorrow so you will not be down any.

The Jan 2016 $550 you bought at $26 could go for as much as $55.

Just ballpark figures assuming Apple opens around $565. A good day for you!

You were pretty close on your predictions. I'm impressed.

Unfortunately, I was mistaken about the second call. It was a Jan 15 call, so it was less, of course. Still, a good profit.

I sold the Oct. call yesterday, and decided not to be greedy and sold the Jan one today.
This was awesome!

Unfortunately, my FB and FWM calls and shares are not doing so well. Timing was bad. I'm thinking of doubling down at this point. If FB recovers even half way, a profit from the cheaper option will minimize the losses. Long term I think FB should do all right.

FWM is a special horse. With what you read about the company, you would stay away. To understand why I think this has a lot of potential you'd have to shop there. It is just really good, better than Whole Foods or Trader Joes by a mile. So I keep thinking if they survive whatever is going on behind the scenes maybe I'm getting in on ground floor to the next major chain. But this one has not been working out so far and is a very long bet.

[kv968]

FWM is a special horse. With what you read about the company, you would stay away. To understand why I think this has a lot of potential you'd have to shop there. It is just really good, better than Whole Foods or Trader Joes by a mile. So I keep thinking if they survive whatever is going on behind the scenes maybe I'm getting in on ground floor to the next major chain. But this one has not been working out so far and is a very long bet.

FWM might be a great place to shop but management has to do a better job with controlling operating costs. Their gross margin is ok but their operating income has been non-existent for 3 years. Also got a ton of debt. Sales have been going up nicely but net income continues to go negative. Are their sales increasing that much because they're buying other stores?

What options do you have in FB?

[corn18]

FWM might be a great place to shop but management has to do a better job with controlling operating costs. Their gross margin is ok but their operating income has been non-existent for 3 years. Also got a ton of debt. Sales have been going up nicely but net income continues to go negative. Are their sales increasing that much because they're buying other stores?

What options do you have in FB?

FWM looks like a horribly run company. No amount of customer experience can overcome the operational silliness they have going on. They seem to be bleeding cash and it isn't because they are opening stores. I would run away from that stock (and based on its recent pricing, so is everyone else).

FWM 10Q