This article originally appeared Jan. 29, 2014, on RealMoney.com. To read more content like this, plus see inside Jim Cramer's multi-million dollar portfolio for FREE -- Click Here NOW.
Most people freeze up when a stock they like gets crushed on the opening. They often lack the courage to take a position until they see how the stock settles out. Once that happens you can feel surer that you are not "catching a falling knife."
If all you are seeking is a decent return on investment, waiting can mean missing the best time to trade. That's especially true if you are option savvy. Option premiums are highest when volatility spikes. Buying shares while simultaneously selling both call and put options can establish a wide band of profitability.
This is a powerful technique if you are convinced "the damage has already been done." Apple's (AAPL) gap down provided a great opportunity to profit from the drop that took place after their latest earnings report.
At 11:37 a.m., the shares were quoted at $508.60 with about $37 available for sellers of a July 19, 2014, $500 call and a premium of $32.60 for writing the same expiration's $500 put.Here's the simple math on the buy-write combination for the five and a half month period until expiration. Owners of Apple shares will earn at least one $3.05 quarterly dividend (goes ex Feb. 6) and perhaps two if the July $500 call is not exercised early. The numbers below conservatively reflect only one payment.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV