Investor Questions On Apple Stock Credit Put Spreads

Recently an investor wrote in with questions about his Apple Stock credit put spreads. This is a lengthy strategy discussion article. It focuses upon the core concept of using credit spreads for profit and for protection of capital.

It touches on setting Realistic Goals, Margin Use to boost return and to protect actual capital in use, the Compounding Effect of money and the importance and reasons for Protecting Capital when investing. Let’s review the various questions and see what answers are available to assist. My additions or adjustments to the questions are in brackets and italic.

Investor Questions: Apple Stock Credit Put Spreads

Teddi,

(Question 1: Spread Size)

I have used spreads successfully with VISA, GILD but $40 risk with the apple spreads scares me. (The $40 spread is what I have set up in my latest Apple Stock put spread – click here to review that trade outline)

(Question 2: Calculating Number Of Spread Contracts Against Available Capital)

Currently I am using the apple biweekly put selling strategy with 200k capital. However since you changed to using (credit put) spreads which I love to do, I don’t know how many puts to buy?  What is the correct balance for my size portfolio between risk and reward?   Do I buy 5 spreads or 15 spreads?   How does one size the spreads for my given portfolio size. I was thinking most of (my capital) dedicated to apple  (trying to make $2000 every 2 weeks if possible using spreads) The rest allocated to stalwart stocks like AFL T, CLX, INTC, VISA.

(Question 3: Credit Put Spread Rescue Strategy for Downturns)

My third question is what is your rescue strategy should apple drop below the short strike? Do you plan to roll down?  How do we rescue underwater apple put spreads.

My current holdings:

Qty 5

AAPL May 17 2014 540 Put (Long)

AAPL May 17 2014 570 Put (Short)

Qty 7

AAPL May 23 2014 520 Put (Long)

AAPL May 23 2014 565 Put (Short)

(Question 4: Margin Use)

I also would like your input… if you have 200k capital… do you leverage and sell 1.5 x 200k = 300k worth of naked puts? What is a safe amount of leverage, seems my broker lets me sell a ton of naked puts. I want to use the right amount of leverage so I have some left over for rescue.

Apple Stock Investor Questions on Use of Credit Put Spreads

This strategy article is 3000 words in length and will require 8 pages if printed. FullyInformed USA Members can directly access this article here or they can sign in to the USA members site here. Non-members can join FullyInformed USA here or read the benefits of being a member.

Internal Stock and Option Trades Links

Portfolio Listing by Years

My Principal Stocks Index

Trade Ideas for Members

Trade Alerts for Members

Put Selling Strategies

Put Selling Strategies For Members

Covered Calls Strategies

Covered Calls Strategies For Members

Profit And Income Strategies Index

Stock and Option Strategies For Members

Stock And Option Trades Explained For Members

Ask A Question About A Trade You Are In

Sign My Guestbook

Visit My Shop

Join The Free Options Forum