Wednesday, February 8, 2017

Selling a put spread on $AAPL

I've been playing around the last few years on option plays.  I'll admit, I haven't spent a lot of time on terminology, so there are better places to find out what an Iron Condor is, and other lingo.

Still, I think that you can profit from this kind of trading.  I have, although I generate enough losses to make me wonder if it can be worthwhile over time.  I still think the answer is yes, but like any other kind of trading, it's probably better as entertainment than a real moneymaker.

Others may disagree with any part of that statement.


I put together a simple put spread on $AAPL.  With the stock price around $130, I sold the $125 May 17 put for $2.90 and bought the $115 put for $0.96.  If the stock is over $125 upon expiration, I keep the entire difference of $1.96 per option, (since options are for blocks of 100 shares, that's $196.)

It seems like a decent trade, a high probability of success.  The problem with this strategy is lousy risk/reward ratio.  If $AAPL price falls to $115, I lose the entire spread of $1,000 (less the $196.)  You can see why some people this isn't smart.  I can agree with that. You need a lot of wins to make up for a few really bad losses. 

I've blown up sometimes using these on short durations.  You can make good returns with weekly put or call spreads but if you are wrong, you can completely blow up your account.  So, I am stretching the time frame by going all the way out to May. 

If I get lucky and get some positive movement, I'll close the position early with a win.

I'll try to let you know how it works out.

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