A strategy idea for options trading investors.

TRADE COMMENTARY:

Apple (NASDAQ: AAPL) is still the best of breed of tech and best in its class. Apple is still selling at a low P/E ratio for a tech company and if you have to be in tech, you have to be in Apple. For a one week trade we suggest selling the AAPL 355 Put, meaning you have to take delivery of the stock around the 352 level, which is okay because we are willing to own it there. But since moves in Apple tends to be so pronounced, we suggest buying two 345 puts in case of a huge move down in the market. This is a more complicated trade than a simple put-spread and it is a position that has to be monitored carefully. At the end of the day, what we are basically saying (not counting option premiums, etc) is that we are willing to be long AAPL at 350.

DATE: July 8, 2011

STOCK/INDEX: AAPL

STOCK PRICE: 358.00

OPTION PLAY: Put Ratio Backspread

SELL: 1 July 15 Weekly, 2011 355 Put @ $3.10

BUY: 2 July 15 Weekly, 2011 345 Put @ $0.85

NET COST: 3.10 – 2*0.85 = $1.40 Credit

Put Sold – 2*Put Bought = Net Cost

UPSIDE BREAKEVEN: 355 – 3.10 + 2*0.85 = $353.60

Short Strike – (Credit Received + Debit Paid) = Upside Breakeven

DOWNSIDE BREAKEVEN: 345 – (355-345) + (3.10 – 2*0.85) = $336.40

Short Strike – (Difference Between Strikes) + Net Credit = Downside Breakeven

MAX PROFIT (UPSIDE): 3.10 – 2*0.85 = $1.40

Net Credit = Max Upside Profit

MAX LOSS: (355-345) – (3.10 + 2*0.85) = $8.60

(Difference Between Strikes) – Net Credit = Max Loss

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.