Some Kind of Wonderful Options

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In my previous articles, I have singled out an option strategy in order to illustrate how that specific strategy works. With the exception of the last two articles on Condors, I did not emphasize the point that any of the option strategies could be combined.

Bullish On Apple
Let us look at the trade that I made last December on Apple. The AAPL on 12-04-2008 did not look to me as an Iron Condor directionless trade. While doing my technical analysis, I felt a somewhat bullish directional bias on AAPL for December yet for January my directional bias was different ñ bearish. On the chart below, I have marked the support at 85 with four blue ovals to indicate the strength of the support.


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At the time of my technical analysis, I felt that in the month of December AAPL would close above 85, thus I decided to sell December 85 put. Figure 2 shows the transaction of obtaining a Bull Put.


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The Bull Put
The easier explanation of the transaction of Bull Put is following:

I have bought to open

• BTO + 1 Dec 2008 80p @ - 1.64 and sold to open STO ñ 1 Dec 2008 85p @ + 2.81

• Max P (profit) = the difference 1.17

• Max L (loss) = 3.83

• ROI (return on investment) = 1.17/3.83 = 30%

In other words, I had invested $383 to make $117 under the condition that AAPL stays above 85. Figure 3 shows that at the December expiry the price was above 85 and I was able to keep the maximum profit. By the way, notice how the next trading session after the expiry the price has gone down and retested the 85 area but was not able to break it.


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TO BE CONTINUED IN PART TWO...
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