Japan

[Grieve]

Breand,

Here's how you do this in Etrade:

First, enter an Option Order and select "Spreads". Do a buy open order for the lower strike price ($325 in my case), and a sell open order for the higher strike price ($330 here):



You select a "Net Debit" price type, which means you pay the difference between the two strike prices. I usually use the recommended "Midpoint". Ignore the price you see here (option has already expired). I paid $3.05 ($305) per contract, and bought 4 contracts, so, $1220 plus commission.

When you want to sell, do the opposite "Buy Close" the higher strike, and "Sell Close" the lower one:



This time you are using a "Net Credit", and again using the midpoint as a guide.

Below is how the trade shows up in your Gains and Losses:



You get a gain on the lower contract and a loss on the higher one. In my case the net gain on my $1220 bet was $1680-$1104 = $576 (+43%). If I'd held until expiration today I'd actually have made $780 (+64%), but Apple has been trading weirdly, and I didn't want to risk it.

I feel like a broker when I say this, but...this stuff is risky. I'd have lost a fair bit of money (potentially $1220) if my instincts had been wrong. If you are going to do this, I'd recommend buying a spread about a year out. Most of mine expire January 2012.