An interesting strategy from a Seeking Alpha article here: http://seekingalpha.com/article/694301-a-chance-to-make-50-on-apple-with-little-downside-risk. It makes use of call spread (shorting and longing calls at different prices) and shorting puts.
The payoff graph for the example described by the article, assuming the cost of the long and the short options cancels out, is:
In words, if the price of the Apple stock goes above $650, the payoff with 2 long calls, 2 short calls and 1 short put will yield $10,000 of profit (the author assumes the transaction cost from the shorts and longs cancel out). If the price falls below $400, the strategy suffers a ‘loss’ in the sense that you will have to buy 100 Apple stock at $400 each, while the actual price of the stock is below $400.
The crucial assumption for earning 50% is 1) the ability to use a margin account, so the short put option ties up only $20,000 of capital, and 2) the Apple stock goes above $650 before the options expires. If you can use naked puts, the return in percentage term would be higher. If you cannot use margin account, the return would be 25% (with the short put tie up $40,000 of capital).
Note that the maximum lost is $40,000, in the case of Apple stocks falls to $0 and you have to by 100 Apple stocks at $400. The author claims this trade to have ‘little downside’ because he assumes you values the apple stock at $400 – so that you would be happy to buy the Apple stock at $400 even though it currently is trading at below $400 (though hopefully not at $0).
I find the strategy suggested by the author interesting because it highlights how even though the purpose of option is insurance, it allows the author to change the payoff of the stock to something he deems to be the optimal.
In contrast, one of the commenter of the article, "Roger C. Wren,” suggests an alternative strategy of using just 1 short put at $450 (and he assumes the premium of the 1 short put yields $5,300). In this case, the payoff of the stock is:
Essentially, the commenter prefers a profit of $5,300 should the stock stay above $450, versus the article author’s preference of a profit of up to $10,000 should the stock goes above $650. To some extent, it also suggests that the author thinks it more likely that the stock will go above $650 than the commenter.