On Friday’s Options Action on CNBC I detailed two trade ideas, one to add yield to a widely held stock and the other a contrarian bullish trade for one of the worst performing stocks year to date in the Dow 30:
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Apple (AAPL) trade idea From CNBC’s Options Action Friday Dec 5th, 2014:
Hypothetical Trade: Against 100 shares of AAPL ($115) Sell to open 1 Jan 2nd weekly 119 call at 1.15
Break-even on Jan2nd weekly expiration:
Profits: gains of the stock between $115 and $119, gains of 1.15 in premium below $119
Losses: losses of the stock below $115 less the 1.15 in premium from the call sale.
Rationale: It’s hard to envision a significant rally above previous highs (between now and year end) after the flash crash of last week. There are likely sellers lurking above. That means a sale of an upside call at previous highs makes sense and adds about 1% of yield to the holding if the stock closes the year below 119.
For more detail, read here
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GE bulish trade idea From CNBC’s Options Action Friday Dec 5th, 2014:
TRADE: GE ($26.00) Bought Feb 26 Call for .65
Break-Even on Feb Expiration:
Profits: above 26.65, up about 2.5% over the next 2 months
Losses: between 26 and 26.65 lose up to .65, max loss of .65 below 26
Rationale: Despite the expected decay over the holidays, at the money calls appear to be a better way to play for a contrarian bullish view in GE, as the risk to owning the call is above the $25 support level and it won’t take much on the upside before these are at parity. If the stock does catch a bid after New Year’s we’d look to spread.
For more detail, read here
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