Friday, August 21, 2015

AAPL Update #25 (Stock Purchase)

Aug 21 - EOD Supplement

Analysis

Just when I thought this market had fallen all it could, it went lower!

The market seemed to crash at the end of the day, with the DOW closing down 530pts.

Earlier in the day, I had reset the hedge with AAPL at about 108-109. By end of the day AAPL dropped another 2pts and the downside puts exploded in value. The low for AAPL was down to 105.65.

I can take advantage of this end of day prices to roll the hedge established this morning. During the last 15 minutes I took advantage of the appreciation in the hedge to close, purchase more stocks, and reset the hedge.

Interesting lesson on the collar hedges. The price moved down about another 2-2.3pts, but the call premium dropped barely 0.25, while the put contract gained over 5X that amount and was one strike further away still. That is fear premium reaching into the market! The range for AAPL today was very large, around 6.50pts.

The covered call alone barely gained 100 while the put gained 600! Short calls alone cannot purchase additional stock as efficiently as having both the short call and long put in place.

Trade

Part 1 - Close hedges
+6c Aug 28' 113 Call @ 0.68 (I had sold for 0.87)
- 6c Aug 28' 102 Put @ 1.90 (I had bought this earlier in the day for 0.90!)
Net profit: 696

Purchase stock
+6 AAPL shrs @ 106.30

Total shares of AAPL is 699 (just 1 short being able to sell another option contract)

Part 2 - Re-hedge
-6c Aug 28' 112 Call @ 0.90
+6c Aug 28' 98 Put @ 0.89
Net credit 0.01

Net position debit is 78 410 with a break even at just over 112 at Aug 28' expiration. 

The position is unfortunately down about 4160. Remember the stock is now down 25pts (and the market as a whole) since the Feb 26 position opening. This represents an unhedged market loss of 600 * 25 = 15 000.

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