AAPL Position Management

I'm glad to have closed the February AAPL calls yesterday which were opened Wednesday, they brought a nearly 40% and 31% 1-day gain which isn't a lot by most people's standards for options, but I have a totally different outlook on options after having lost 1 account to their addictive allure.

I always remind people that options are more or less a derivative product created by Wall St., most people don't see them that way like they would something like MBS, but they are really an amazingly efficient way to empty one's account. Most people have some wild initial success with a 3 digit return and get hooked, often people who can least afford it with smaller accounts in a bid to make quick or fast money. There's no fast money in the market that is lasting, it's building a solid portfolio and let compounding take over with good risk management.

After having played options many times over the years, I've found that I prefer to look at them as a tool among many tools rather than a single trading style. If I see a great signal, but I feel the profit potential isn't there or if it looks like it will be a short duration move, then options make sense to increase the leverage, but my standards for the signals are much higher. If I think I can make a decent return using less leverage like a 2-3 times leveraged ETF or using no leverage, then that's my preference.

With options I try to do the opposite of what most people do and seemingly the way Wall Street wants you to use options. I'd rather be in the money a little bit and have much more time than I think I'll need. I'm also very quick to get out of them, I don't want to hold through expiration, if I can hold a trade that long then it shouldn't be in option. There's just too much going against you from the moment you enter with the premium to time decay, so whenever I see a situation in which it looks like there will be a consolidation or pullback, I'd rather close the position, collect a double digit gain and re-open it after the pullback if conditions are still good, so ultimately the same high percentage can be made over the same period, but I'm trying to not be around during the times that eat in to the value of the option.

Yesterday with AAPL, here's what I saw and why I closed the positions.

 The arrow is about where the calls were opened, I want to be in at moments of volatility or momentum like the white boxes, but out at areas of consolidation like the red box.

This 5 min AAPL chart still shows some hope for a decent trade in AAPL, as of this moment I don't think options (at least not the standard or simple put or call strategy) are the right tool.

It's been estimated that nearly 90% of all options expire worthless, that means the juice is actually in writing them, but there aren't huge gains there so it doesn't have the same allure to retail traders, the probabilities are huge though and over a long period of time, the compounding is huge.

The mistakes I see ar people buying options with too short of an expiration, usually too far out of the money and they tend to hold them too long, often until expiration where time decay has done its damage. They are treated more like a lotto ticket than a useful tool among a tool box of different tools.

In any case, we'll keep an eye on AAPL and see what's happening there, if there's a trade that is high probability and what the right tool is for that trade.

This morning we have another supply chain story out about AAPL, yesterday it was AAPL was ordering fewer components for the IP5 as demand falls off. This morning it's the I-Pad screens from Sharp are nearly at a production standstill as many turn to the lower margin I-Pad mini with I pad sales expected to drop by 40% in the current quarter alone, at last according to Reuters.