This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Buying Apple One Slice at a Time

Of course, you're not limited to covered calls and puts, you can also get fancy and create calendar spreads, bull/bear credit/debit spreads, and every other possible combination that is available to 100 share contracts.

This leads me to one of my favorite ways options allow me to create a position, the credit spread. In its most common and basic form, a credit spread is a combination of a long and short option with different strike prices but using the same stock and expiration date. With a credit spread, the long option is further out-of-the-money than the short option contract, resulting in a net gain of premium.

For example, a bull credit spread for Apple that I like is the February $540 /$510 put spread (credit spread). I can sell the $540 February put for about $22.50 and buy as a hedge the $510 put for about $11.50 for a net credit of $11. Previously, this spread would have a total risk of $1900 and a potential gain of $1,100.

With the new CBOE's mini options, I can create the position and only risk a total of $190 and potentially gain as much as $110. Because I'm bearish with Amazon, I will use it as my bear example and continue to use a credit spread. For a bear credit spread, we use call options instead of puts. I like the February $410/$440 credit spread. We can sell the $410 call for about $13.50 and buy as a hedge the $440 call for about $6.25 for a net positive premium of $7.25.

Using 100 share traditional contracts results in a maximum loss potential of $2,275 ($410 - $440 = $30 minus the premium of $7.25 = $22.75 times 100 shares = $2,275). If $2275 is too much to risk even though you're Amazon bearish, a mini contract total risk is only $227.50, with a potential gain of $72.50.

Making a full circle back to Apple, buying calls is no longer the only strategy available to modest retail investors that want to gain exposure, but also sleep at night knowing they have limited risk. By using mini contracts, you can more precisely dial-in your risk to fit your investment objectives.

At the time of publication the author had no position in any of the stocks mentioned.

Follow @RobertWeinstein

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $123.25 -0.80%
FB $83.30 0.35%
GOOG $548.34 -1.23%
TSLA $185.00 -2.84%
YHOO $45.10 1.42%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs