Can anyone tell me how I might enter an options order?
I'm interested in purchasing options contract on Apple Inc, just 100 shares I expect Apple to go to 400 by January 2012 just a straight call option. I'm researching with books but I'd like someone to give me some advice. Thanks
- Rolf GolfLv 59 years agoFavorite Answer
If you expect AAPL to go to $400 by Jan2010, you could BUY TO OPEN its Jan2010 $350 strike price call options for $42.45. However, its breakeven point would be $392.45 which means that if you expect to sell at $400, you would make a profit of only $400 - $392.45 = $7.55 per share due to the high extrinsic value in AAPL options.
Alternatively, to increase your profit margin and expect no further profit beyond $400, you could upgrade the position into a Bull Call Spread by simply SELL TO OPEN an additional same amount of Jan2010 $400 strike price call options against the $350 strike price call options. The short $400 call options would offset the price of the $350 call options and give you more favorable reward/risk.
The Jan2010 $400 call options are now bidding at $21.40. Doing a 350/400 Bull Call Spread will result in a position that cost only $42.45 - $21.40 = $21.05 . Maximum profit would be $50 - $21.05 = $28.95 rather than the puny $7.55 just buying the call options.Source(s): http://www.optiontradingpedia.com/free_bull_call_s... - Free tutorial and video on Bull Call Spread http://video.optiontradingpedia.com/buycall/aapl_c... - Watch a video on buying call options on AAPL