The AppleInvestor Trade Room was first conceived as a trade signal service to trade Apple stock with algorithmic systems. These systems are incredibly effective for that purpose, there are traders for every trading style, and all of them have high win rates and outrageous profit factors. But even with strong systems there are still drawbacks for many traders.
The two principle concerns are the lack of leverage and the difficulty using monthly options. The high share price of Apple makes it difficult to trade with smaller accounts, with the current price of Apple at 492, requires $49,200 of buying power for a position size of 100 shares. Compare that to only $450 to $1400 required to buy at the money (ATM) CALLS and PUTS to control the same number of shares, that’s 95% less capital!
Monthly expirations with time decays that happen only one week in four, make it difficult to take advantage of short term price movements and the frequency of trade signals produced by automated systems.
Another concern was that some traders wanted to trade their IRA; unfortunately IRA regulations prohibit shorting stock in an IRA account, because margin disqualifies it as a retirement account. However these same rules will allow the use of PUT options. This seems odd but true.
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So, while monthly options are difficult to use with automated systems, especially if the trader wants to use time decay, or create strategies that take advantage of quick price changes, Weekly options with a much shorter life cycle provide an excellent alternative.
Weeklies allow the trader to construct the same strategies you can with monthly options, the big difference is now you can profit 52 times a year instead of 12. Playing short term price movements are no problem with weeklies, as you can easily tailor effective risk strategies, much better than simply setting a stop. When you combine the 70 percent win rate of the autotraders, with the versatility and leverage of weeklies, you have an incredibly powerful trading tool.
The biggest disadvantage of weeklies is that the short time decay makes it difficult to adjust or repair a strategy. Another disadvantage may be low open interest and volume, which widens spreads. This however, is generally not an issue with Apple weekly options.
Volatility is Key
Playing Volatility and Gamma (the rate of change in Delta) on monthly options is a critical strategy. With the short life cycle of weeklies, it is even more so, as you can easily capture triple digit gains playing extreme volatility. The key is timing, and that’s where automated systems add gasoline to the fire of weeklies, by putting you in the best possible position, at the best possible time.
Often we know there’s going to be huge price swings in Apple, but we just don’t know which direction, so playing weekly straddles and strangles is another fantastic opportunity from which to profit. Apple’s frequent extreme price movements can be caused by a multitude of events, like earnings, new product announcements, analysts prognostications, and the wind blowing in the wrong direction.
Versatility of Weeklies
Apple automated systems and weekly options are an incredibly powerful team. But there are so many other reasons to use Apple weeklies on our portfolios, that allow us to create a powerful, and overall sophisticated and customized risk strategy.
Short term strategies are cool, but we also have weekly automated traders that are perfect for the trend trader. At the outset, weeklies might not appear to be the best match for a trend trader, however if you had a system that put you in the right trade better than 70 percent of the time, you could use a weekly rollover strategy, to both collect income and accumulate stock for your core position.
Our Apple auto traders are generating potentially dozens of signals each week, with each trader working in its own timeframe to accommodate different trading styles. Trading more than one system with plain stock would be impossible, due to conflicting trades. But trading multiple weekly options strategies would be entirely possible, allowing the trader to profit on multiple traders at once.
Conclusion
Weekly options are the perfect compliment to Apple automated trading systems. Weeklies solve all the downside of auto traders, while enhancing the already superior timing and profit potential of the traders, and allowing the creation of exciting income generating strategies to boot. We love weeklies!
Apple investors want to know what you think, comment below…
