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RodneyBD: I have been researching and occasionally buying call options on companies that appear to be undervalued. Pretty straightforward. Learning while trying. I stumbled into some beginner luck and bought a call option (100 shares) of AAPL, $420 strike, expiry is June 18 2021. My per share cost basis is 2.42 and price per share is now $76.15. I'm struggling to figure out a coherent exit strategy.

Congratulations. One of my first lucky Options move was similar. I wrote about it recently in what ended up as a series of three or four postings in response to an inquiry from another person sitting with an AAPL LEAPS Call. As it happens, I was in a comparable situation to yours: your Call is going to become 4 contracts between now and expiration, thanks to the split that's going to happen later this month. The split my position underwent was a 7:1 split.

As you'll read, though, by holding until the end I was able to sell-to-close on some of the contracts, gaining enough in profit to exercise the rest. The details are in this series of postings. https://boards.fool.com/1321/kmartindmd1-just-wondering-when...

I do not consider myself an equity market pro, and I view these little trades as conservative investments to make possibly make a little money without putting much capital at risk. If I'm not too confident APPL has more upside, I'm thinking I should sell and be happy with my profit. I'm sure there are some technical ways to analyze this trade, but I'm trying to stick with my KISS investing strategy. The one variable I am unsure if is time decay. I have 9+ plus months left on this contract, is there any rule of thumb to think about with this longer time horizon?

The Time Value aspect of it (IMHO) is the least important in a long call position. What you need to model is what the Intrinsic Value will be under various scenarios. Remember, with a LEAPS Call, IV will grow $1 for every $1 the underlying stock grows. Of course, it will also decline by $1 for every $1 the underlying stock declines (down to a minimum of $0; TV does become a bigger consideration as prices fall...).

If I were in your place, I'd hold it at least until after the split...not because that makes it more valuable, but because that will give you more flexibility: specifically, the ability to sell-to-close 1,2,or 3 contracts rather than all at once. And that (tax considerations aside) might enable you to exercise the remaining contract(s) and acquire AAPL shares with a post-split basis of $105 (plus whatever you paid for the Call)...and if AAPL then is worth, say $ 125...well: would that be worth it to you?

mathetes
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