A lot of my colleagues are saying that Apple stock will go over $300 a share by the end of the third quarter. One analyst has predicted $400 a share. With all of that hype I decided to try to benefit from this by writing a put spread on Apple.
So when the stock was around $260 I sold 20 puts of the Oct 260’s for about $46,000, and bought 20 puts of the Oct 250’s (to protect me against a loss greater than $9,000) for about $37,000. (See “Merv’s Trades”).
This means that I put $11,000 in my pocket! I can reinvest that while the options are in place—or I can take a nice vacation with it.
If Apple stock stays about $260 a share through Oct 17th, I get to keep the $11,000 forever. I will keep the $46,000 premium and lose the $37,000 premium I paid for the long position, which will expire worthless. If the stock goes below $260 I will lose $2000 per point, for a maximum loss of $20,000 less the $11,000 premium I collected at the outset. So my maximum loss is $9,000.
I think the odds are pretty good, but I’ve been wrong before.
Mlh July 28, 2010
