One of the silver linings of a market correction is its ability to reveal truly strong stocks. As the venerable Warren Buffett opined, “Only when the tide goes out do you discover who’s been swimming naked.”
While some stocks have been found wanting during the recent market turmoil, others, such as Apple (AAPL) stock, have shown relative strength.
It’s been subtle, to be sure, but the mighty fruit has rebounded nicely from the recent crash and is nestled closely to overhead resistance.
While the rest of the market continues to flounder, a breakout attempt is looming for AAPL stock.
Click to Enlarge
As shown in the accompanying chart, the recent consolidation in AAPL stock has taken on the form of an ascending triangle. The pair of higher pivot lows suggest demand for Apple shares is building. At the same time, the twin peaks near $115 reveal formidable overhead resistance.
With AAPL stock approaching the apex of the triangle, things are coming to a head.
The slight shift from weakness to strength is shown in the comparative relative strength study in the lower panel. The trend reversal (black arrow) marks when AAPL stock began outperforming the S&P 500.
Trading Apple Stock
If you’ve been waiting to enter AAPL stock, consider the coming breakout over $115 your ticket for admission. Provided we stay below this level, the bears hold the upper hand … but if we can hop above it, the scales begin to tip in the bulls’ favor.
With volatility elevated and option premiums still rich short option plays are the way to go here. Sell the Oct $100/$95 put spread for 50 cents. Consider it a bet that Apple’s stock price remains above $100 for the next month.
The max reward is limited to the initial 50 cents and will be pocketed if the puts expire out of the money.
The max risk is limited to the distance between strikes minus the net credit, or $4.50, and will be lost if Apple stock price tumbles below $95.
Those of a more aggressive nature could sell the Oct $105/$100 put spread instead. It offers a more attractive 86-cent credit, but carries a slightly lower probability of profit than the $100/$95 put spread.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
