Stock, Option and Futures Trading
AAPL Weekly 340 Calls
May 30th, 2011
We are also watching AAPL for the 340 weekly calls. Friday these calls closed at $1.45 and if AAPL breaks above the $338.00 we see AAPL going to $348.00 this week. You can play it tight with a stop at $334.00 on the stock or give it more room down to $330.00.
The way we look at weekly options is we are risking 100% of the premium to get our profits. We are most always going for more than 100% so even risking all the premium our risk to reward is still favorable. Risking the whole option might sound risky or crazy to you but if you trade the correct amount of contracts it makes sense.
Let me explain: If you bought AAPL stock right now at $337.40 and had a stop at $334.00 you would be risking $3.40 per share. If you bought 1000 shares that would be a risk of $3,400. If you bought 10 call options at $1.45 your max risk is only $1,450. Which has less money risk $3,400 or $1,450?
So going into the trade knowing that weekly options are higher risk and we could lose 100% of the premium it is important to trade the same amount of options as you would shares of the stock. Just because options might seem cheap they are not. Options like futures are leveraged and if done properly the leverage can be your friend not your enemy.
Losing 100% of your option premium is like taking 100% of your stop loss but in this example even if you lost 100% of the option premium it is only like taking 40% of your stop loss using the option.
AAPL has yellow bars on the 60 minute chart and that means that a bigger than normal move is about to happen. The bigger pattern is still up and if AAPL breaks above the $338.0 the odds favor a move to the upside.
Of course offering the picks before the market is open has its downside because the market could gap down but nevertheless AAPL is one to watch this week!