Is it more difficult to execute a bearish trade on a company whose products you love? In cases like this, a trader needs to look at the trade from technical and fundamental aspects — not with his or her heart.
Here is a trade idea that might just go against your heart, but keeps your portfolio in mind:
Apple (AAPL — $433.26): Call Credit Spread
The trade: Sell the June 460/465 Call Credit Spread (selling the June 460 call and buying the June 465 call) for 80 cents or better.
The strategy: The maximum potential profit for this trade is 80 cents if AAPL is trading below $460 at June expiration. Both call options would expire worthless. The maximum loss is $4.20 (5 – 0.80) if AAPL is trading above $465 at June expiration. Breakeven is $460.80 at expiration based on a credit of 80 cents.
The rationale: Apple sure has had its share of up and downs lately. Back in September 2012, AAPL stock seemed on top of the world, and the company could do no wrong. Unfortunately for the stock and the company, times have changed. Just recently, Bloomberg did a survey and asked some of its customers if Apple had lost its status as the technology industry leader. An overwhelming 71% of the respondents said they did — even if the drop in status was only a temporary thing. Apple also said it plans on having no new announcements until fall.
Click to Enlarge Taking a look at the chart, Apple stock has come back from a huge tumble it took starting in late March, and now it has started to roll over once again. AAPL has a resistance area at $440 that it is currently struggling to get through, and it looks like it might take another plunge lower based on nice sell setup which took place on a weekly chart.
If Apple stock does attempt to move higher, it still has another level at $460 that could push the stock back down again like it did in March and earlier this month. Apple might come back again, but June expiration might be too soon to do it by!
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.