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Call Spread in AAPL

All examples are as of March 23, 2011.
The second example is a longer-run strategic play.

Let's say you are somewhat bullish on AAPL, but not wildly so. Additionally, you know that there are a lot of fast money longs in the stock that have been giving it a rocky ride. A great way to play this is to buy a call spread.

The top picture at the right shows that you bought 1,000 shares of Jan 2013 calls at a strike of 350 and sold 1,000 shares of the 400 strike. Long term options like this are called LEAPs. Obviously, you hope that AAPL goes up, but above $400 you are indifferent.

The next picture shows what you get when you press the Diagnostics button. All your assets are listed along with the implied volatilities and greeks. Note that the implied vol of the 350 is a little less than that of the 400. This is often the case in stock options, where vol is skewed to the downside. Note the Theta column; your time decay is only (-49.32+47.69) = $1.69 per day. This is due to the option being so long dated.

With positions like this, traders can often be uncertain of what their real exposure is. One measure of exposure is Delta. This means the effective number of shares you are long. If the price of AAPL goes up by $1, you will gain $1 times the Delta. Look at the third graph. From the black line, you can see that you are currently long about an effective 120 shares. So right now this is really a rather small position. However, things change as time goes on. From the red line you note that as of 4/16/2012 your Delta would go up to about 180 shares.

So both the Delta and the Theta are rather low. The real risk in this position will come far in the future, when expiration is near. Until then you can sleep soundly.