How I realized large overnight gains with Apple Call Options

Summary of Analysis on how I realized large overnight gains with Apple Inc.  January 13, 2017, $117 Call Options (gains realized on 1/6/17).

I earned an 88.37% return and a 73.51% return on two Apple Inc. call option trades done on January 5, 2017, with gains realized on January 6, 2017. I posted my thoughts on how Apple’s stock would perform to StockTwits after executing my call option purchases. I also posted my first trade and execution price:

http://stocktwits.com/KoolNupe/message/70950938

On January 5, 2017, I anticipated Apple Inc. stock’s price would gap down overnight (stock’s overnight price < previous business day’s closing price), and the gap would fill by market open (stock’s price at market open > or = to previous business day’s closing price) based on the facts:

  1. AAPL Call Option Open Interest on 1/5/17 was consistently greater at higher strike prices than current 1/15/17 market price going all the way to and beyond January 2018.
  2. AAPL Put/Call ratio increased on 1/5/17 to >.5, and the P/C ratio of AAPL often reverts to around .4 (frequently with a violent move to ~.4).
  3. Since AAPL traded choppy for several days without a significant move down, a surge higher was likely, as a floor had been set (bears failed to break AAPL).
  4. I anticipated algorithms, and institutions would look at # 1 and trigger long trades at market open, driving Apple’s price up, enticing more buyers, causing short sellers to cover, and put holders to eat losses. Many professional traders would know this, which would drive the pre-market open action to the upside.
  5. I like buying near expiration call options, 1 to 2 strikes above market price (out of the money).  This is high risk / high return scenario:  If I’m right I get paid, if  I’m wrong , I cut my losses quick!

BOOM!

 

 

 

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Bull Split-Strike Combo

Greg Collier's Blog

A top trader once told me, “don’t take risks with your money, take risks with other peoples money.” Such an attitude made many folks on Wall Street rich, and helped fuel a global financial crisis. With ethics, one always wins in the end. To make things clear, when trading short-term, or investing long-term, there’s always risk involved. If anyone advises otherwise, they either lack competence or they’re lying. When trading or advising others, I often use directional strategies that can be reversed if they’re not working.

One of my favorite bullish strategies is a Bull Split-Strike Combo. I employ this strategy when I’m:

  1. Bullish on an underlying security
  2. Generally bullish on the broad market
  3. Want to buy a security at a specific price

With this strategy, I am partially financing the purchase of Call Options, by selling Put Options. This strategy is similar to a synthetic long position, the difference…

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The stock market is not rocket science

Stock valuation is not rocket science. If you look  at U.S. stock prices realistically, private debt is at an all-time high relative to GDP (on a total amount, per capita, and as a percentage of GDP)! The unemployment figure widely publicized is not high, but the U6 number which includes marginally attached workers is super-high (and has been for years). So things are not as good as many people think, especially regarding the future growth prospect of corporate earnings. Factor in the fact that the stock market has been propped up by a low interest rate policy, and we have a potential recipe for slow stock price growth going forward, if not a big downward move in U.S. stock prices. When interest rates do finally increase, watch out!

Another big issue is the algorithmic traders run the short-term stock market! Whenever there is a big short-term move in either direction, they are usually a big part of the cause, if not the sole reason. They are doing their best to get paid when the market goes up or down. When trading volume increases, regular folks often start to buy or sell following the lead of the algorithms, despite not necessarily understanding short-term price action driven by support or resistance levels, and written into many trading algorithms. These algorithms will change direction and push the short-term market a different direction in order to capture quick profits.

I believe people will significantly adjust their investment portfolios when interest rates rise bringing many overbought stocks down to their appropriate valuation.

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The day after Armageddon for stocks

Now, a day after Armageddon, and the first time the DOW closed down more than 300 points for 3 days in a row, futures are up big time. This is a zig zag stock market. A bunch of people will buy today thinking we’ve hit the bottom, but a new sell off is likely on the way (and could happen today). If for no other reason, there are more companies at 52 week lows (as a percentage of the total stock market), than ever before. Being at a 52-week low usually spells trouble for a stock at least for a few months. We will see.

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The loss of life over a pair of gym shoes?

I just read about Jawaad Jabbar, a 16 year old boy from Ohio who was shot and killed after allegedly trying to steal a pair of Nike Air Jordan basketball shoes.  Apparently, the new limited edition Air Jordan’s were sold out, so Jawaad tried to steal the shoes from someone who had just purchased a pair.

ARE GYM SHOES REALLY THAT IMPORTANT?

Expensive Gym Shoes & Ghetto Economics

I was in the fifth grade when leather gym shoes became popular in Detroit; that was 1978. Prior to this time, if you were cool, you had a pair of white canvas high-tops. Converse All-Star “Chuck Taylor’s” were the most popular brand. If you weren’t cool, you had a pair of non-brand-name gym shoes your mother bought from the grocery store. The “no-name” shoes sucked — they had a plastic sole and couldn’t grip the basketball floor, or any floor, for that matter. When I came to school wearing a pair of cheap gym shoes one day, the other kids laughed at me.

“Greg has on slip & slides,” they yelled as I slid down the hallways. It was as if I were wearing roller skates. Teasing by other kids is what one had to endure if not wearing the most popular styles of shoes and clothes. Little did I know the chaos children in the future would have to endure for the sake of style.

I was one of the worst players on my fifth and sixth grade basketball team, but since we dominated most of our opponents, I usually played all of the third or fourth quarter of games. I needed some cool gym shoes so I could be part of the in-crowd; slip & slides just wouldn’t suffice.

I convinced my mother to buy me a pair of leather basketball shoes. The pair I wanted were white high-tops, with a baby blue leather stripe. I was ecstatic when I got them. Now I’d be just like the professional basketball players, wearing the latest and greatest gear. The girls would look at me in my skin tight, low-cut basketball shorts, and they would see my shoes — I’d be popular. The guys would see my shoes and say, “Dog, your shoes are sweet.” I would be “The Man!” Life was good.

Just as important, I had the coolest of the cool new hairstyles, a shag. Not to be confused with women’s hairstyles that shared the name, in the late 1970s, the shag was a popular hair style among urban black males. To create a shag, long hair was cut low, while leaving a rounded section of long hair near the bottom of one’s hairline. A shag typically spanned two to three inches in vertical height, and stretched the horizontal length of one’s hairline.

Soon we were about to play our archrival. I probably wouldn’t get to play in the game because they always played us close. They had this tall dude named Norton, and he was good. But we had guys on the second string who could start for most teams, so they never beat us. Yet, it didn’t matter if I played or not; I’d look sweet during warm ups and on the bench in my leather gym shoes.

But when I unveiled my leather gym shoes with the smooth baby blue stripe, Aaron, one of the best players on our team, called me a biter (i.e. a copycat). He already had a pair of the same brand of leather gym shoes, baby blue stripe and all. Damn, I could have been a trendsetter, but instead was labeled a biter. Oh the shame!

If you had a “cool” hair style and wore the latest fashions, you were “The Man.”

I wished my mother had been willing to spend more money; I would have bought a more expensive pair of leather gym shoes — ones with a white suede stripe. Then I’d be “The Man.” The only other dudes with white suede stripes on their shoes were Todd, who had a different brand, and Tony on the seventh and eighth grade team; he had some low-tops with a white suede stripe.

The next year, I bought some leather high-top gym shoes with a white suede stripe, but once again I was labeled a “biter.” Aaron beat me to the punch again. He had already upgraded to the same brand of shoes — white suede stripe and all. (The next time I try to set a trend, I’m going to call Aaron to make sure I don’t copy his style inadvertently.)

My first pair of leather gym shoes cost around $30; my second pair cost around $35. This was the late 1970s, so when adjusted for inflation, $30 shoes easily equate to a pair of $100 shoes in 2012 dollars. I broke the $40 cost barrier in the eighth grade by buying the most popular brand of leather high-top basketball shoes. They had a black leather stripe and gripped the basketball floor better than any pair of shoes I’d ever worn. They had a terry cloth insole which absorbed sweat. Because I sweat a lot, this caused my shoes to stink beyond belief.

I wore the shoes so much the stench of my feet could be smelled from across a large room. That’s when my mother threw them away, figuring such a smell couldn’t be removed merely by replacing the insoles. The era of expensive sneakers was in full swing. Today, the athletic shoe industry is a multi-billion dollar cash cow, along with various types of clothing brands.

But what’s the big deal about shoes and clothes? My father grew up wearing plain canvas Converse All Stars — fancy athletic shoes didn’t exist back then. To this day, my father has never had any problems with his feet. This, despite countless hours of playing basketball on the New York City hard courts. And if one dresses neatly, does it really matter if the clothes are made by a particular designer?

As time progressed, many popular brands of shoes and clothes emerged — a reason to spend money to keep up to date with the latest fashion trends. Or, as I like to say, a reason to spend money for the sake of spending money. And the prices of gym shoes continue to increase. It’s not uncommon now to see some sneakers priced above $300.

I remember visiting the home of a successful businessman in Detroit. His seventeen-year-old son had just returned from a sporting goods store with a new pair of expensive gym shoes. In the young man’s room, he had five stacks of shoeboxes, each seven feet high.

When the young man’s father questioned him on why he had purchased another pair of gym shoes, he said, “These are collector edition — a rare pair of shoes. They’ll be worth a lot of money someday. I’m only going to wear them a few times; then, I’ll save them for the future.”

The young man had an abundance of shoes, CDs, and DVDs in his room, but no books. It’s no wonder he was a poor student. The bigger question is why the young man’s father had not intervened earlier and prevented the purchase of so many shoes. Another question is why their home had multiple high-tech entertainment centers, but no library.

It’s not a crime to own a pair of nice athletic shoes, or an expensive pair. However, to own a portfolio of expensive shoes, if nothing else, is a poor financial decision. And to purchase shoes in hope of price appreciation is a speculative transaction at best. Sure, some rare gym shoes might sell for thousands of dollars today. However, money can be utilized more prudently on things that can provide a greater return with more certainty.

Young men have even been mugged for their gym shoes, and in some cases killed.[1] Such is the world today and a reminder to me of why young people must have priorities beyond owning material possessions, especially ones that earn no financial return. Money wasted is a potential impediment to one’s future financial success.

Rather than spend large sums of money on fashion, would it not be wiser to save and invest for one’s future? All children should learn the “Rule of 72.” This approximates how long it will take money to double at a particular rate of interest. Here’s how it works:

The number 72 divided by an interest rate, equals the approximate number of years it takes money to double at that interest rate.

Example: 72 divided by 6 equals 12 (72 ÷ 6 = 12).

Thus, it will take approximately 12 years for $100 to turn into $200 at 6% interest. Note: this does not account for inflation or tax implications (which will impact the real return).

Excerpt from The Janitor’s Sons: A True Story of Hope, Shattered Dreams, and Winning Despite Adversity (Chapter 8: Expensive Gym Shoes & Ghetto Economics) © 2012 by Gregory Collier. All Rights Reserved.

http://www.JanitorsSons.com

[1] See Paul Duggans, “Sneakers apparently led to killing,” The Washington Post, http://www.washingtonpost.com/local/sneakers-apparently-led-to-killing/2012/01/09/gIQAN1rVmP_story.html (January 9, 2012).

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You Have Time To Achieve Your Dreams!

I was able to earn a graduate degree while working a demanding, full-time job! I was also able to write a 59,000 word book while running a business. If one puts their mind to it, anything is possible, regardless of time constraints!

There are 24 hours a day. How you use them is up to you!
24 Hours per day
Sleep 5 5 5 5 5 5 5 5 5 5 5
Travel 2 2 2 2 2 2 2 2 2 1 0.5
Work 6 7 8 9 10 11 12 13 14 15 16
Dining 2 2 2 2 2 2 2 2 2 2 1.5
Miscellaneous 1 1 1 1 1 1 1 1 1 1 1
Hours Left 8 7 6 5 4 3 2 1 0 0 0
You have the time to achieve your dreams!
www.GregoryCollier.com
24 Hours per day
Sleep 6 6 6 6 6 6 6 6 6 6 6
Travel 1 2 2 1 0.5 1 1 1 1 1 0.5
Work 6 7 8 9 10 11 12 13 14 15 16
Dining 1 2 2 2 2 1 1 1 1 1 1
Miscellaneous 1 1 1 1 1 1 1 1 1 1 0.5
Hours Left 9 6 5 5 4.5 4 3 2 1 0 0
Including a minimum of 1 hour per day for dining, plus 30 minutes
of miscellaneous time, everyone should have time
to achieve their dreams!
24 Hours per day
Sleep 7 7 7 7 7 7 7 7 7 7
Travel 2 2 2 1 0.5 1 1 1 1 0.5
Work 6 7 8 9 10 11 12 13 14 15
Dining 2 2 2 2 2 1 1 1 1 1
Miscellaneous 1 1 1 1 1 1 1 1 1 0.5
Hours Left 6 5 4 4 3.5 3 2 1 0 0
24 Hours per day
Sleep 8 8 8 8 8 8 8 8 8
Travel 0.5 1 2 2 3 3 1 1 0.5
Work 6 7 8 9 10 11 12 13 14
Dining 2 2 2 2 1 1 1 1 1
Miscellaneous 1 1 1 1 1 0.5 1 1 0.5
Hours Left 6.5 5 3 2 1 0.5 1 0 0
24 Hours per day
Sleep 9 9 9 9 9 9 9 9
Travel 3 2 3 2 2 0.5 1 0.5
Work 6 7 8 9 10 11 12 13
Dining 2 2 2 2 2 1 1 1
Miscellaneous 1 1 1 1 1 1 1 0.5
Hours Left 3 3 1 1 0 1.5 0 0
24 Hours per day
Sleep 10 10 10 10 10 10 10
Travel 3 1 1 3 2.5 1.5 0.5
Work 6 7 8 9 10 11 12
Dining 2 2 2 1 1 1 1
Miscellaneous 1 1 1 1 0.5 0.5 0.5
Hours Left 2 3 2 0 0 0 0
24 Hours per day
Sleep 11 11 11 11 11 11
Travel 1 1 2 2.5 1 0.5
Work 6 7 8 9 10 11
Dining 2 2 2 1 1 1
Miscellaneous 1 1 1 0.5 1 0.5
Hours Left 3 2 0 0 0 0

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I like the short put spread option strategy when I’m bullish on a stock

I trade options and like the short put spread option strategy when I’m bullish on a stock. With a short put spread:

  • my risk is capped (I know exactly how much money I can lose)
  • I know my maximum potential profit up front, and
  • the margin requirement is minimal

To set up an option play, my analysis is always thorough; however, this doesn’t mean I’m guaranteed to profit – profitability is never guaranteed. If anyone tells you otherwise, they either don’t know what they’re talking about, or they’re lying.

I analyze potential option plays post market-close, pre-market open, and intra-day.  Though prices can change dramatically overnight and intra-day, by starting my analysis after the end of a trading day, I can focus more intensely on my analysis, without the distraction of intra-day news and price swings.  Having analyzed closing-prices, I can prepare for anticipated price moves when the next trading session begins.

Two things I look at in detail are an option’s open interest and daily volume. I want to know which strike price has the greatest number of open contracts and the trading activity in those contracts. This is important because it’s a potential indication of where large traders (institutional investors, etc.) may try to pin a stock’s price at option expiration.

I sell out-of-the-money put options (i.e. options with a strike price lower than the current market price). I usually make sure the put options I sell have a strike price at or below that of the put option with the most open interest. I simultaneously buy put options on the same underlying security with a lower strike price, which limits my risk: I can only lose the difference between the strike prices plus commission, less the premium I received (credit received for selling a put option).

I prefer using this strategy in a short time frame prior to option expiration. By this I mean anywhere from a few days to a few weeks prior to expiration. This hopefully allows me to capitalize on the fact that a stock’s price may stay in the range I desire, maximizing my profit potential. I want the options to expire worthless so I keep as much of the premium a possible (100% if the options expire out-of-the-money).

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