First, this is **NOT** in any way to be considered advice!  But I do like the action on AAPL, with the stock trading BELOW the $80 support level in after hours due to the announcement relating to Steve Jobs’s leave of absence.

At or near the $80 level, I like the following combination calendar collar play:

  • Buy 100 shares of AAPL (target $75-$82)
  • Sell (1) April $80 covered call – (target $11-$13)
  • Buy (1) February $75 Put – (target $2-4)

Apple should report earnings next Wednesday January 21st – after January options expiration.  The February PUT is used for protection from what may be a catastrophic earnings report.  If AAPL tanks after earnings, then I will look to take profits on the February PUT.  Timing is important as it is best to take the PUT profits when you think AAPL reaches a good and stable BOTTOM.  I may also close the covered call early and take profits, and perhaps sell a lower strike covered call at some point.

If AAPL reports good earnings and the stock remains stable after earnings, then I may close the February PUT early – probably for a small loss.   In closing the PUT, the covered call will still offer decent protection, but it is limited.

One last note.  This is not a premium service.  There will likely be no trade updates. You should only attempt this or similar options trades if you are comfortable managing the positions yourself.

If you want to read an excellent book on stock option adjustments, please purchase the following:

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading)
The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour