≡ Menu

Betting on Apple at 9 to 2

Apple reached its all time high of just over $700 this past September, but has recently dipped below $440. They say that the price of a stock has no memory, it is what it is based on today, it recent earning, and its projected earnings. That said, there are opportunities to place a bet that can get you many times your initial money if the stock recovers even just part way.

Disclaimer – The post title is Betting on Apple. With Odds of 9-2 (or 4.5 to 1). These are gambling terms and this article is not about investing, it’s about gambling. Buying a stock and selling covered calls is a bit less risky than just owning the stock, as you’ve shifted your risk down the curve a bit. Just buying options is a time constrained wager. The bet I will share is that I believe Apple will recover to $600 by January of 2015. The payoff for $2200 is $10000 if this happens. Let’s look at the details:

ApplePL

This chart was produced last Friday, Jan 25th. The stock was trading at $445.91. To enter this trade, I looked at the price to buy the Jan $500 calls, and they were Ask – 46.50, which meant that at $600, I’d get back $100 for a bit over a 2 to 1 return. But, it would take $700 before I saw 4 to 1. So I looked at the price to sell the $600 call, and it was Bid – $24.00. The profit/loss chart appears above. You can see that at $500, the bet is lost, but each dollar above $500 is $100 returned. So, it’s $522 to break even and at $600, the $2200 returns $10,000.

Appletrade

Above, you can see the trade as it was executed. I entered it as a spread order, which meant that both trades had to go through and only if the difference was the $22 I bid. $600 is a 35% rise over the next two years, $522 is just 17%. This is leverage at its best. Stock up 35%, my wager up 354%. Trades like this don’t work every time, but if you have a lucky streak, and only one in three do, you’re still making money. Personally, I view the chance of this hitting at about 50/50. On a final note, this is not my investment money. It’s money set aside to go to the casino. But since I don’t actually go to the casino, this is where I’ll wager.

{ 4 comments… add one }

  • Dave February 20, 2013, 5:20 pm

    Sure, I’ll give it a whirl. Looks like about $2325 currently per contract.

  • Dave August 13, 2013, 11:33 am

    Guys, we’re finally in the money on this trade, am I the only one excited about this? Joe, is it time to take our money and run?

    • Joe August 17, 2013, 1:12 pm

      Hey, just saw your comment. Yes, the $500 is now at ~ $64, and $60 at ~$32, so this is at $3200. Not quite a $900 gain since I bought in. I’m not a chartist, but it’s tough not to look at charts and see that $600 doesn’t ‘feel’ like a tough goal with 17 months to go. I’m staying with this position, and riding it out. Although, I’ve learned that if Apple should blow through our $600 target, and the spread squeeze to ~ $90 or so, it may be best to take the money and run.

      Thanks for visiting again and the comment. I hope you make some good money on this trade.

      • Dave August 19, 2013, 1:16 pm

        Thanks Joe, looks like a good call as AAPL is marching forward again today!

Leave a Comment