Here is the skinny on those 10 Contracts of Apple Calls, They are July $155’s, APVGK that I put in the portfolio on Friday for $6,000.

They are up another $1,900 or 21.71% just today as of Noon. We are up a total of $4,650 or 77.5% since Friday and they are now worth$10,650. I am pointing this out so that everyone can get past the mental block they have about being able to regularly obtain at least 21.5% returns, yearly mind you, on a regular basis.

You can learn how to do this and I am going to show you. Now if you purchased these and you feel comfortable with getting a 77.5% return in 4 days it would be OK for you to sell them all now. Bravo, job well done. Go take Yourself/Husband/Wife/Significant Other out for a nice Dinner this evening. Good behavior should always be rewarded so that it will be repeated.

AVGK.X

12:17PM

10.65

1.90

10,650.00$10,650.00

1,900.00

21.71%

4,650.00 $4,650.00

77.50%

What you could do is then take the profit and purchase a higher strike price call or do nothing. But looking at what is going one today, I would be inclined to just go out and add to this play and stick with my initial plan.

But this is all about learning and we should see what would happen changing things up a bit.

As to continuing the play, I am going to plug in the alternative trades where we sell them now and see how we do. This way you have zero capital at risk and yet can still be in the play. Be right back after I check some prices here.

OK, here is the play, we are going to have two scenarios. We sell the 10 contracts and lets say we net $10,500 after commissions etc.

Play #1 we are now only going to play with the $4,500 so we are only playing with our profits. We stick the $6,000 back in the mutual fund that is going to pay us 1.5% for the moment. This is fine and probably a very smart play especially until you get comfortable with options.

We are now going to buy the July 190 Calls. We can snag them at $2.64. This means we pay $2.64 for each share we option or $264 per contract. We can pick up 16 contracts.

Jul 08 Call

APVGR.X - 190 Strike

Last- 2.61

0.66

Bid -2.57

Ask - 2.64

In scenario #2 we put the $10,500 back into these contracts. We can pick up 39 of them. Here again our out play is that we dump 50% of them when it doubles and let the rest ride at least for awhile.

I have a ton of things to do today but I will explain the Why, The What, and The How on this set of trades. Right now I am just doing a little proof of concept for you to convince you that this can indeed be done on a regular basis and then we see if I get egg on my face or moola in my wallet.

You can make a lot of money trading options and I am pretty good at it but I do not prefer them. Kind of like Tom Selleck in Quigley Down Under and Pistols….. Why? Because you have to keep an eye on them at all times. You can’t go away on vacation, it is like watching a two year old and because they can really go down to Zero if you are not watching them. Sure you place stop-loss orders in but they can wiz right by those.

So, I only do these plays periodically. But when done right they can really pump up your portfolio.

By the way you can use Yahoo Finance portfolios to set up these trades and try out different scenarios yourself. You can keep options in there. If you are thinking about doing this, I suggest you set one up and follow along if you want to learn how to do this. Seriously, you only truly learn while doing.

I just realized we are going to want to look at these daily now…..hmmm I may put this up on a static page with all of the entries so that you can follow along. I highly suggest you take 5 minutes though and set up a Yahoo portfolio or set up a test portfolio at your brokerage so that you can follow along and take a look at this periodically during the day. CBOE actually has a nice free system too. I will throw up a video when I get a chance.

Cheers,

Andrew Anderson

This entry was posted on Wednesday, March 26th, 2008 at 12:19 pm and is filed under 20 Percent Plus Returns, Investing Challenge, Options. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.