Sunday, June 3, 2012

Every blogger "needs" to have a position on in FB and APPL

These days it seems like everyone in the financial press has some opinion about Facebook (FB) and Apple(AAPL).   Hence CCI felt "the pressure" to join the club and have a trade for these two stocks.

CCI's view for these two stocks is that there will likely be a very public tug of war between people who are  bullish and bearish in these stocks over the summer.  Everyone talking their book. That mean perhaps these stocks will trade sideways this summer.  If this is true the best trading strategy for these two stock is to try to generate some income from option premiums.  Further, this strategy will likely drive results that are somewhat uncorrelated to stock market returns which is another key goal of many CCI positions.

Specifically, CCI established two July iron condors this week. (Selling both a put spread and call spread)
- Apple $495-$500, $610-$615 for a $2/contract credit
- Facebook $25-$27, $33-$35 for a $1/contract credit (more details on this trade are documented in this Seeking Alpha article entitled Using Options to Profit From the Facebook Tug of War)

Each trade has a defined risk/reward that makes it somewhat different that traditional investments.   I'm reluctant to describe it in "gambling" terms...but
- The Facebook trade:  Risks $1 to make $1 trade (i.e. 50/50 odds)  that the stock trades between $26 an $34 (a 26% range) by July expiration.
- The Apple trade: Risks $3 to make $2 trade (i.e. 40/60 odds) that the stock trades between $498 and $612 (a 21% range) by July expiration.

Of course, neither trade needs to be held until the expiration date.  If at some point in time between now and the expiration date the stock gyrates to a price near the midpoint of the iron condor range, it will be "in the money" and  gains can be harvested at that time.  Hence these trade actually have much better odds of being profitable than the static odds of maximum gain at expiration.

 In full disclosure, these are not huge positions in CCI's overall portfolio, but are more intended as an  illustration of  an alternative way to try to generate income in today's go nowhere marketplace.

Plus now CCI has officially joined the crazy world of the financial press and can talk "my book" on these stocks like every other blogger and tv interview

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