Option Credit Spread on AAPL

Put option trading

Option Credit Spread: Just did a Put Credit Spread on Apple in my personal account.

Sell the Feb 320 Puts, Buy the Feb 310 puts for a credit of .95 cents

Total risk per spread, also the margin, $905.

Maximum return per spread: $95 for a potential ROI of 10.49% before options commissions.
19 days left in this trade before expiration. 83% probability of profit according to thinkorswim.

This trade is a little too risky for the OptionGenius portfolio so I am posting it here. Why risky? Because it is not too far away from the current price of 338. There is support at 320 which is good, but if the market turns over, Apple will be one of the first to slide.

AAPL stock credit spread

If Apple does drop, I will probably exit the option trade when I am down 10-15% which is $135. I don’t know if I will have time to post any adjustments on the blog so trade at your own risk.

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  1. Rutul on January 31, 2011 at 4:17 pm

    Allen –

    Great minds think alike. I actually put a similar trade on at market open this morning after AAPL dipped slightly below yesterday’s close to ~$335. I was able to do a bull put spread on the Feb 315 puts and Feb 310 puts for a credit of $.58 cents or 13.1% ROI before commissions. The 320’s were a bit too risky for me…

  2. Satish on January 31, 2011 at 4:38 pm

    I did this trade last month when AAPL was at 343 Sell the Jan 320 Puts, Buy the Jan 315 puts for a credit of .40 cents and it expired worthless with a profit of 8.6% . AAPL has very good support at 320 but we have to remember that Steve Jobs was on medical leave now and any small news that he is not doing well may slide the stock below 320 in a single day (this happened when we learnt that Steve Jobs was on medical leave). I don’t want to risk this.

  3. Tom Plaskett on January 31, 2011 at 4:38 pm

    I have been doing credit spreads on AAPL for the last three months and have absolutely killed them. My motto is get them while the getting is good. AAPL, I guess, is a bit volatile dictating the nice returns. I was just thinking of adding some more positions tomorrow and now I know it is the wise thing to do. Thanks Allen for writing at the opportune time.


  4. ikram khan on January 31, 2011 at 4:52 pm

    i trade apple quite a lot, i think this trade has huge potential to be profitable, and more like expire. however the middle east situation is a little scary.

  5. Robert on January 31, 2011 at 5:02 pm

    I actually laid in the weekly version of the same trade this morning. I was thinking over the weekend., would the weeklies actually lessen the risk? I do know that getting 5% three times is better than 10% once, but I am more interested in the risk mitigation.

    • Genius on February 1, 2011 at 12:57 pm

      I think that weeklies dont give you enough time incase there is a drop. You have to be much closer to the money in a weekly so a bad day could kill the trade. But then you are only in the trade for 4-5 days instead of 18-19 so it depends on your own risk appetite. I prefer index for weeklies because they are less resistant to bad news that is company or industry specific.

  6. Ryan on January 31, 2011 at 5:23 pm

    Dear Genius,

    It does seem a little risky only because the market itself seems to be risky. Apple could get pulled down a little bit if the market sells off. I am going to pass on the trade, however thanks for the email. I’d like to wait a few days and see if Apple hits the high and back tracks. If it does that I might be tempted to throw a call credit spread instead of a put credit spread.


  7. Hugh on January 31, 2011 at 5:29 pm

    I see support at 326 and I see the 50day ma at 327. On the other hand I see bearish divergence in the RSI.
    Apple is a strong company and generally a strong stock.
    I think it is a good trade, BUT, not good enough for wimpy me. Had my performance last year been a little stronger I would take this trade. Since I am being especially conservative, I’ll sit back and watch. I am long this stock at 249 as well.

  8. Ezduzit on January 31, 2011 at 6:33 pm

    I have traded and won bull put credit spreads on AAPL the last three months in a row and the sold strike never came under pressure during those 3 months. I did not put on a Feb 11 bull put credit spread for AAPl becuase recent devopments show it has potential for a short term pullback due to uncertainty over the health of Steve Jobs and increased competetion for the tablet PC. If I were choosing an AAPL spread for February I would choose to buy the 300 strike and sell the 310 strike. If AAPL started to drop dramaticlaly I would buy some 320 or 330 puts as a day trade to make my overall position delta neutral until AAPL hit support and stabilized.

  9. Dennis on January 31, 2011 at 8:24 pm

    Everyone, you are leaving money on the table by not creating an Iron Condor. I make 15%-20% a month because I always sell the call side as well. I usually go about 45 points above the current price. You need to leave some head room but I never have the call side threatened. Example; if the price closed today at about $339 I would sell a 385 and buy a 390 call. And I would sell a $320 and buy a $315 put. If I have to adjust my trade than so be it but I almost never have to do that.

    • Genius on February 1, 2011 at 12:54 pm

      Good idea Dennis. I looked at the iron condor, but the credit on the call side is not worth the risk. At least that is my opinion. If I had started the trade with more days to expiration it would make sense to me.

      The 385/390 call spread is paying .05 credit as of today with the stock at 345. it probably wont get hit, but to get anyreal premium you would have to sell the 365/370 or 365/375. That is a little too close for comfort.

    • shipps on February 1, 2011 at 4:07 pm

      I am new to options and need some help. I bought apple Mar 19 2011 365 put options couple of days back and with mkts going up, incurring major loss. How can I convert this into a spread to minimize my losses. Any suggestions!

      • Genius on February 1, 2011 at 6:59 pm

        If apple keeps going up you can sell some puts, maybe the 370’s and get some money back. Apple would have to be above 370 on expiration or you could lose more money.

        But the best thing would probably be to exit the trade.

        • shipps on February 1, 2011 at 11:39 pm

          Thanks Genius

          Do you think if I purchase some March 11 $325 calls, that would help me offset some of the losses?

          Please help.

          • Genius on February 2, 2011 at 12:30 pm

            But calls in a different month would be a different trade. if you buy the 325, you need apple to move up higher than it is now to offset the cost. These are way in the money and so they will mimic what the stock does. Like I said earlier, the puts you bought are probably a lost cause. And a reason you should look into option selling.

  10. Keith on January 31, 2011 at 9:25 pm

    I took the other side and did a bear call spread 355/360 and got .78 credit. Hope we are all correct!

  11. keith on January 31, 2011 at 10:39 pm

    you all are a bit more saavy than I, but i have a few questions about this. (getting a handle on opions and learning, only a little trading of them so far.)
    1. spreads of well under a dollar credit for 3 weeks time doesn’t seem like much. how many contracts are you mostly trading and how many of these are you doing a month?
    2.would weeklies provide more income and quicker decay (in our favor)
    3. where on think or swim would we be able to get these probabilities of good spreads?

    • Genius on February 1, 2011 at 12:48 pm

      1. You can trade as many as you have money for. For me this is a small trade and I am doing 5 of these using about $5k in margin. But I also have other trades on such as a put credit spread in POT, a large butterfly position in USO, and a strangle in LVS plus stock in this one account.

      2. Weeklies decay faster, but the premium is lower and if there is a large move you have less time for the trade to work.

      3.In thinkorswim set up the trade in the analyze tab using the Add Simulated Trades button and you can see the probabilities. They have videos on their site that show how to do this.

  12. Sam Newman on January 31, 2011 at 11:15 pm

    I am selling outright puts, and I like your trade. This trade (bull credit spread, puts or calls), especially the weekly expirations is the way to go. It requires a margin of one sixth of a margin of outright put sale (20% of the underlying). How about lower priced stocks, like LVS? proportionately, premiums are much higher (including spreads)

  13. Barnard on February 1, 2011 at 6:29 am

    Although I am just learning I did feb put spreads on agq and tza, cause I am bullish on both.
    With turmoil in africa I was looking at credit spreads on aapl and goog but since bidu earnings skyrocket I am doing a wait and see today.
    Anyone else getting a little bearish on the market or looking at these stocks.

  14. Tom Plaskett on February 1, 2011 at 9:25 am

    I think Satish had to have made his trade closer to the end of the expiration period. You can easily get 13% to 20% on a credit spread with this stock. I do like the conservative end of this but ultra conservative does not work for me. Just a thought, Satish.


  15. Rohan Patel on February 1, 2011 at 1:19 pm

    When out of the money bull spreads are executed the trader is forced to hold the position till expiration.Net credit minus broker commissions usually does not leave much for the trader. In the case of Apple the trader gets this credit because the share price is above $300.Normally shares trading between 10-50 do not have much net credit left if a trader executes bull spreads with out of the money puts.
    Even in this case the trader has a loss of $905 for a maximum profit of $95 with 83% probability of any profit.83% does not guarantee $95 but only any profit and it can vary from 0-95.
    Profit/loss on this trade depends on where Apple stays during the last few days. If there is a gaped down opening on Apple in one of these last days the trader can not make any adjustments and his stop loss will be ineffective. A loss of $905 will eat away his 12 month’s profit. It is too much of an optimism to think that such gaped down openings will not happen to the trader. In my experience at least once or twice such gaped down openings occur in one year and the trader usually ends in a loss.
    As disclaimers say past profits are not a guarantee for future. Even if the trader makes 11 trades profitable one bad trade can wipe out his whole profits and in real markets it does happen always.

    • Genius on February 1, 2011 at 2:25 pm

      Very nice explanation. But it is not always true that you have to hold these into expiration. One of our Jan trades for the service is a put credit spread in OIH that we are ready to take off with a 10% gain. Been in the trade 9 days and there are still 17 days to expiration.

      No trade is without risk, gaps do happen and that’s why we try to limit our losses. But it is a good case against weeklies.

  16. Ezduzit on February 1, 2011 at 2:44 pm

    It is definitely not necessary to “always” hold credit spreads until expiration. I sold 25 contracts of the Feb $135/140 Netflix bull put spread for $.31 on Jan 22,2011 and closed it on Jan 27, 2011 at 70% of the original target profit. I figure if the trade hit 70% of my original target in one week there is no reason to risk holding it until expiration on Feb 19 — The net proift after commissions was $554

  17. Robert Hensley on February 1, 2011 at 3:35 pm

    Dear Genius,
    I have been on the sidelines for the past 3 or 4 months, because I got hurt not exiting my trades when I had lost least half of my priemum . I did well in apple in 2010, but all my calls expired worthless, being a month short. I had the 280 and 290 appl calls and didn’t go out far enough.
    I use to trade bull put spreads a lot and only got hurt once in 3 years. I really like this blog on Spreads. and the apple spreads especially.
    I’m still nervous about jumping back in with Steve Jobs having health problems. Thanks for the good trade information. Robert

    • Amelia on August 23, 2014 at 1:37 pm

      Your posting really stanightered me out. Thanks!

  18. Cyriac Kandathil on February 1, 2011 at 8:03 pm

    Holding period may come down when the spread is executed ‘At the money, or ‘In the money”. However when the trade is executed ‘out of money’the trader is generally required to hold the position till expiration.The deltas of the ‘out of the money puts’ are very small and hence there will not be much change in the net premiums if the share price moves without much volatility. That is why closing the trades before expiration becomes a problem.
    If the trader executes the trade at the money or in the money the probability of profit becomes less than 50%.Then the probability of assignment also goes up.The probability of gaped down openings also goes up. When there are other strategies that over comes these draw backs why should one go after bull spreads and bear spreads.
    Cyriac Kandathil

    • Genius on February 2, 2011 at 12:32 pm

      As of right now, the trade is up 6% in just a couple days. No reason you could not take it off here if you wanted to. Or at least take part of the position off to protect your profits.

  19. Tom Plaskett on February 2, 2011 at 9:21 am

    I agree on not holding the spreads until expiration. If you have made a inordinate amount on the spread and it at least approaches your profit goal, bale on the position as the spread has narrowed substantially and then go find another position that you can make some money on until the expiration period that gives you more room to maneuver.


  20. Fred Cook on February 8, 2018 at 11:38 pm

    If a 145/140 apr put credit spread expires with apple closing at 142, what is the loss per contract?

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