Thursday, December 07, 2006

Apple Computer Puts Up 183%

Hedge Fun!
I've been hedging my long term positions, one of which is Apple Computer (AAPL). The idea of buying Put options is to buy the strike price at a higher price in which the stock is currently trading so when the stock goes down, you profit from the fall. You must remember that you still are Long shares of the stock, because one would be long term bullish, short term bearish, and the idea is to protect your initial investment from short term losses. Your Put Options contracts lock in your specified sell price for however many shares you would like to have covered, based on the amount of contracts you bought. Let's review my trade, and chart.

I bought the DEC 2006 Put on APPLE COMPUTER INC at $90.00 for $1.20 a contract.

Apple's Chart:

I think this is just a short term breakdown, Apple has been ridiculously overbought by every mutual fund, and hedge fund manager in the universe to "window dress" their portfolio's for the year end preview of their % figures they've gained. The Stochastic Indicator clearly show's the stock has been Overbought for over a month now, without breaching the 80 level which would signal selling and weakness. I hope this gives insight as to how I trade. I like using techinical terms, and never understood a single one of them until I started reading other blogs and sat down to due my own research and find my style of trading. I'm still on a personal adventure to further my knowledge in the options world, and so far, it's paid off quite nicely. Icing on the cake.

Thank you for reading, and please feel free to post your thoughts in the comments section!



AJ said...

Would selling covered calls be a better option than buying puts?

Henrietta said...

Hi Cal, great site, great post. I think AAPL is grossly overbought as well. The thing I don't like about aapl is that it's longer term chart has always been so erratic, I prefer monthlycharts that are rising up smoothly. Of course, that being said,it has been the rising star. Actually, when the market turns, it will be one of my best short candidates.

Anonymous said...

If you got over 180% on the puts, I think that's much better than what you woud have gotten from a covered call premium.