Where will Apple (NASDAQ:AAPL) shares be trading at this time next year? Analysts and investors can hypothesize all they want, but there’s no way to tell for sure. But have no fear — this trade idea focuses on price action in the next week, not the next year.
The trade: Sell the Feb. 8 435/440 put credit spread (selling the Feb. 8 440 put and buying the Feb. 8 435 put) for $0.75 or better.
The payouts: The maximum potential profit for this trade is $0.75 if AAPL is trading above $440 at Feb. 8 expiration — next Friday. The maximum loss is $4.25 ($5 minus $0.75) if AAPL is trading below $435 at expiration. Breakeven is $439.25 at expiration based on a $0.75 credit.
The rationale: Apple’s rise and fall has been well documented. The technology giant has suffered at the hands of analysts and investors who think the company should consistently “surprise” with earnings and sales numbers that make jaws drop. The latest announcement last week didn’t meet those lofty expectations and the stock paid the price — literally. There was also some concern that Research In Motion’s (NASDAQ:RIMM) new BlackBerry 10 might put some additional pressure on Apple … but that stock’s plunge after Wednesday’s unveiling suggests those concerns were overblown.
Click to EnlargeApple shares haven’t been valued this low in about a year, which makes it an attractive entry point. Technically, the stock traded down to and just below the $440 mark, where it found some support. Right now the stock has found resistance at $460; if it can break that area it may look to challenge the $500 mark once again.
Even if resistance holds and the stock pulls in some, the $440 support level should be enough to move the stock higher once again. If either of these scenarios transpire, this credit spread will expire worthless next Friday … regardless of what the stock is doing next year.
At the time of publication, Kmiecik had no positions in the securities mentioned.