Tuesday, January 24, 2006

Trade Update

Boosting my exposure to Apple (AAPL) via a Bull Call Spread established today for a debit of $1.20 per contract. For those unfamiliar with this option spread, it is the purchase of call options at some strike price and the sale of call options on the same security at a higher strike price.

In this particular trade, I went long the Feb 80's for $2.20 and short the Feb 85's for $1.00.

The spread expires on February 17. So, I basically need AAPL to move into the profitable range by then. The spread limits both upside and downside. Ignoring transaction costs, break-even for this spread is at AAPL equal to $81.20. Here's a profit-loss diagram for the spread I entered into today. (Click Image to Enlarge)

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