I will try the Bull Call Spread, that sounds like a very good plan for what I expect (hope) to happen.

Thanks for the great advice!

Allen

With the recent drop in the market the increased volatility has made the price of options more expensive than just a couple of weeks ago.
Let’s look at a few alternatives for you to choose from:

1. You could just buy a put, but that would be too costly.

2. You could convert your position to a covered call, but all that would do is give you a cushion on the downside. It does not provide you any real protection.

3. You could combine the two into a stock option collar, trying to use the proceeds from selling the call to purchase the put. While this is a good start, if you are trying to do this for a low cost, your upside potential will be less than your downside protection.

4. Try the Put Spread Stock Collar I wrote about just last week.

For example, say apple is at 190:
Let’s go out 1 standard deviation to the up side, and add protection 1 standard deviation to the down side.

Sell Apr 230 Call
Buy Apr 180 Put
Sell Apr 145 Put

Assuming you already own AAPL, you should be able to place this trade for close to no cost if you structure it so that the two sold options pay for the one purchased option. Do not forget to factor in the original cost of AAPL (or the cost of AAPL to place the whole trade now) to determine your actual return on this trade. While this approach does not cover you if the stock market really goes into the tank like it did a year ago, it will provide a large cushion if the market corrects 15 – 20% while leaving room for AAPL to pick up 15% to 20% on the upside.

5. Another Strategy: The Bull Call Spread

If you really do expect AAPL to gain at least 20% in the next 6 months, this option only strategy might be right for you.
For the same amount of risk, you can place a trade the requires far less capital. This way, you do not even have to spend the money to buy AAPL.

Buy AAPL Apr 210 Call
Sell AAPL Apr 230 Call

Of course the down side of this one is AAPL going nowhere. If that happens, you lose the $1,200 you invested, but then you still have the $18,000 you did not have to spend to buy the stock in the first place.

The choice is yours!

I hope this helps.

JD

What would be the best way to protect profits made with the recent quick increase of AAPL while still participating in the increase many analysts are predicting for AAPL?

Thanks,

Allen