I think you're underestimating how heavily a Verizon iPhone is discounted in both company's share prices. This isn't anything new - the market isn't just figuring out about this. There's been talk about this for YEARS. While there still might be some opportunity there, you need to understand the risk/reward in this situation... or have an iron stomach to muscle through the stress. Shorting AT&T? Did you see the Atrix release at CES? I don't believe in basing my decisions on a single product (I wait for a larger catalyst), but this isn't going to hurt AT&T by any means.
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I am going to merge the two together. They were created very close together, same topic.
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I hope you are right. I'm a big Apple fan, I bought and sold numerous times Apple shares, even holding some of them for over 2 years but then selling them, and re-entering at a higher price again.
I don't think there is a stock of a company of that size that has been evaluated so wrong. Apple is going to be the biggest USA company soon, now they are number 2. They have so much cash and have no loans or any credit, they own all their buildings and patents.
Well, when you are trading options, you are trading implied volatility. Think of options as insurance and the implied volatility as the insurance premium. When things become uncertain, the insurance premium goes up.
When you look at the implied volatility over the next three expirations, they are all within a point of each other. If there was a short term catalyst that was expected to move the market, say the front month IV was 5 or 6 points higher then the next expiration then a short term move is expected and priced into the market.
Over the last 6 months, IV has range has been about 14 to 23, moving up from 15 a month ago. It has been 31, but that was a while ago. I think a lot of punters are buying OTM calls as a bet.
I would say sell the spread, take the IV fall of a few bucks and be on your way before earnings on the 25th.
Jan 6 was a dividend by the way.
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Let's do simple math, for a long Straddle, strike=36, expiration Mar 18 2011:
- you buy 1 Call and 1 Put, cost is 1.26+1.31= $257 before commission.
- if on Mar 18 2011, VZ quotes $40:
-> Call 36 value = $400
-> Put 36 value = $0
-> your gain is $400 - $257 = $143
- if on Mar 18 2011, VZ quotes $30:
-> Call 36 value = $0
-> Put 36 value = $600
-> your gain is $600 - $257 = $343
- if on Mar 18 2011, VZ quotes $36:
-> Call 36 value = $0
-> Put 36 value = $0
-> your loss is $0 - $257 = -$257
Your upper breakeven point is strike price of long Call + net premium paid, so 36+2.57 -> 38.57
Your lower breakeven point is strike price of long Put - net premium paid, so 36-2.57 -> 33.43
That means: if VZ is not moving more than $2.57 before March 18th, your spread will lose money.
This is a simple case, at expiration date...
Like @traderwerks, I would sell the spread, but as the OP is a an options newbie, my advise would be to paper trade first.
Unlike @Fat Tails, I don't think a Short Butterfly is a good idea for a newbie, too many legs .
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