A strategy idea for options trading investors.
Trading opportunities are plentiful in the market lately. But for the most part, risk is high across the board. Finding a nice, conservative trade is getting tougher and tougher. But, I found a play this week that fits the mold for a fairly safe trade with good potential: sell the Apple, Inc. (NASDAQ: AAPL) July 300-310 Put Credit Spread at $1.00 or higher [that is, sell the AAPL July 310 Puts and buy the AAPL July 300 Puts for a net credit of $1.00 or more].
This spread has a lot of good things going for it. For one, AAPL is a strong company with good products in the market and in the pipeline for future release. Like most U.S. stocks, AAPL shares have been somewhat beaten down lately. While the market overall doesn’t look great, AAPL is among the best of breed.
But the great thing about this sort of trade set up is that we’re not necessarily looking for a rally. This type of spread is not so much a “bullish” trade as it is a “not bearish” trade. This trade makes money as long as shares of the tech giant remain above the break-even point of the trade, which is $309 — a level AAPL has not seen in over six months.
If shares remain above that point the trade is a winner, with the maximum profit being $1 per spread. So, if AAPL rallies, the trade wins. If AAPL remains neutral, the trade wins. In fact, even if the trade falls some the trade can be a winner.
Below $309, the spread loses with a maximum potential loss of $9 a share. The disproportionate risk to reward is a function of the high probability that this trade ends up a winner within the next three weeks.
For my money, this is one of the stronger option plays in the market right now.
Dan Passarelli of MarketTaker.com writes the Market Taker Edge options newsletter. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”