Rimm is moving higher so we decided to place a bull put vertical spread so we sold the $110 put and purchased the $105 put option for a net credit of $.60 per share or $60 per contract. Our goal is for the stock to remain above the $110 price come the August expiration which is two weeks. Rate of return is 6.4% ($60 minus $1,000 cash requirement equals $940 divided by $60). The stock’s current price as of the close on Friday was $120.15.
Learn more about Bull Put Options from the following courses available now.
Bullish & Bearish Option Course
Bull Put Spreads
We like (AAPL) enough to place a trade but only a conservative spread trade. Our trade will be the August 150/145 put spread with a credit of $.80 per share or $80 per contract. Our goal is for the stock price to close above $150 in three weeks on expiration Friday. Learn more about spreads from Mark.
AAPL – My wife goes MAC, last week after about the fourth time her computer crashed she dragged me to the mall to visit the MAC store. Lines on each side to get into the store, I talked my way in and we spent over $4,000 buying a desk top and laptop. Thinking that the long lines were proof I should be bullish on the stock I then viewed the chart only to see a different story (bearish). The stock closed down $6.66 (three sixes, scary) at its 200 day Moving Average which is long-term support. The stock will move one of two directions Monday after the market close (UP or DOWN) as they release their earnings after market on Monday. The best trade for this situation would be a straddle (see below) with just a single contract or two because the options are so expensive. After the move on Tuesday close out the losing trade and keep the winning trade until you’re happy. This straddle consists of both a call option (if the stock goes up) and a put (if the stock goes down). CLOSE OUT ONE OF THE TWO TRADES AFTER THE NEWS. If they have a good earnings report close out the put option if they have a bad earnings report close out the call option. If you’re not sure what you’re doing paper trade this first. Training CD on Staddle plays
MasterCard (MA) will be releasing their earnings on July 31st, and we’re bullish on the stock so we’re looking to place a bull put spread by selling the August 210 put and buying the August 200 put for a credit of $1.22. The stock was one of only a few stocks that closed up Friday as it closed at $257.35 up $4.15. Our goal for this vertical spread is to have the stock remain above $210 come August expiration. To be more conservative you may consider closing the trade for a smaller profit on July 30th before the earning are released to limit the risk.
SPECIAL NOTE: Our June 29th report we placed a 650/640 put spread on the RUT looking for the Russell 2000 to be above $650 come next week’s expiration, it is currently trading at $675 which is good but please remember that this option expires on Thursday and the actual closing price is based on the Russell 2000’s opening price on Friday morning so if the price is close to 650 on Thursday close the trade early by buying back the 650 option in case bad news comes out over night.
Being a bit conservative this week we looked at VISA (V) and found a $2.50 strike price offering $.65 credit for two weeks. By selling the July $75 put and purchasing the July $72.50 put option our credit is $650 based on ten contracts with a risk of $1,850. Rate of return is 35% for two weeks. Our goal is for the stock price to close above $75 on July 18th, the current price of the stock is $78.07 and at a support level.
With the market moving lower last week as oil prices continue to move higher we’re going to place a bear call spread on FSLR selecting the 330/340 call option. A bear spread represents the selling of one option and the purchase of another option which will limit the losses in case were wrong and the stock rallies much higher. Selling the 330 and buying the 340 gives us a credit of $.75 per share which is $750 credit based on ten contracts. Your risk is $10,000 (difference between the 330 and 340 for ten contracts) minus the credit of $750 equaling $9,250. If your account can’t handle the $9,250 then trade fewer contracts. Our goal is for the stock price to remain below $330 come June 20th expiration. If the stock moves above $330 you must know how to close out the $330 call and keep the $340 call hoping it moves much higher allowing you to sell the call for a profit before expiration.
As we do every month we -cap our weekly reports on the last option trading Friday. The three of our trades placed this option period are doing well. POT will expire worthless giving us out maximum profit and our two LEAP trades V and SWIM are longer-term call options and they are still doing well. For the coming week were going to place a BEAR CALL SPREAD on RIO looking for a limit of $.30 per share. You decide how many contracts you’re going to trade; your rate of return will remain the same regardless of the number of contracts. Based on a $.30 return and a margin requirement of $220 per contract your rate of return will be 13.6 percent for the four week trade. Maximum loss if the stock moves above $42.50 will be $220 per contract. Our goal is for the stock price to close below $42.50 on May 16th, 2008. The stock shows great resistance at $37.50 which is why we selected a bear call spread using the $42.50/$45 strike price.
Visa (V) went public on March 20th at $44 and is now trading at $62.76 as of the close on Friday and sooner than expected options were made available and more importantly to you and I LEAPS are available. This week we’re going to purchase the 2010 $75 (call option) strike price anticipating that the stock will be well over $75 in the next 22 months. The spread price between the bid and ask is wide so you may not be able to get a price between $12.10 and $13.30 but you can place a limit order to purchase based on a price between the bid and ask but if your not filled in a day or two you’ll need to pay full price (ask price) for the LEAP. If Visa performs like Master card did (MA) we could see this become a very rewarding investment because Master card went public May of 2006 at about $45 per share and as of today it’s trading at $217 per share. Time is our best friend when comes to LEAPS and the cost of the 2010 call option should be well worth the investment.
With the market dropping today we thought it may be best to look for a long-term LEAP and take advantage of the price drops. SWIM is trading slightly above its 12 month low of about $10 so the 2010 $7.50 call option is priced at $5.90 leaving $3.18 of Intrinsic Value (equity).
This is a long-term invest looking for the stock to move back to $18 allowing for a profit of about $10,000 for 10 contracts. During the next 20 months before expiration you may elect to sell the short term option against this option.
WARNING: if you don’t know how to properly call your coach for a little hand holding.
