While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
Today I am going to make a suggest on Apple (AAPL).
Apple is trading right around the 112.50 level, at $112.17 as I write this.
And the VIX moving up to test the 25 level.? I am banking on the fact that the VIX will not break through 25.
I am going to suggest you use the front week options, which means this trade will be limited to a 1% allocation.
Therefore, the total allocation will be $1,000 based on a $100,000 portfolio.
Here is how I suggest you trade this.
Use 1/2 the allocation to buy the at the money $112 calls that expire this Friday.
They are quoted at $1.60 to $1.63, so you should be able to buy 3 of them.
Then use the balance to buy the $116 calls, which are quoted at $.21 to $.22.
Based on a fill of $.22, you should be able to buy 20 contracts.
If Apple can rally to $116, I will suggest to close the $112 calls and let the $116 calls run.
Remember, these are the calls that expire September 11th.