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Apple 2018 call spread

Today, Apple is trading at $99. Coming back from prices not seen for 2 years. Here’s the chart I’m looking at.


With the pullback we saw, this is a good time to look at a call spread. Specifically, this one –

I am looking to go out 20 months to January 2018. And I found that the spread from $140 to $150 can be had for $1 net. Let’s recap how this math works and how to enter this trade. The $140 strike is bought for $2.52 and the $150 strike sold for $1.52. This results in a 10X return for a 50% move in Apple over the next 20 months. What if we just bought the $140 strike? The 10X return is still possible, but it would require Apple to hit $165. Only an extra 15%, so possible, and if Apple rose well beyond that, I’d be a bit sad at the gains I passed up, but I’ve had success keep my risk/reward in the range of this trade.

There are a few warnings here. I don’t claim this is ‘investing.’ It’s a gamble, but one where I believe the odds are actually in my favor. To be clear, this is a bet that a stock will rise 50%, and the market is saying, “We think you are wrong and will give you 10 to 1 odds this won’t happen.” I think the odds are far better, perhaps a 1 in 3 chance, 4 tops, certainly not 10. Long term, I’m happy to lose 3 out of 4 times on these, given the high return.

Keep in mind, if the market, and Apple with it, average 10%/yr, or 20% over 2 years, it would take brief bursts of higher returns to average out the down years. Apple can return 10% over a 20 year period , and still provide these high return opportunities every few years.

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