One day does not make a trend, but between Monday’s action and Apple’s (AAPL) monthly chart, we’re looking at a bruised but still healthy company.
The final months of 2015 were hardly good ones for AAPL stock holders, but things are looking sweeter kicking off the first trading day of 2016 for shares of Apple.
Monday’s session was marked by heavy losses brought on by weak Chinese manufacturing data, but as luck would have it, AAPL turned things around in the final 30 minutes, finishing the day narrowly higher by nine basis points.
In of itself, the fact Apple rallied so strongly might be appreciated as a good sign.
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Following a much weaker two month decline of nearly 18% in AAPL compared to the S&P 500’s dip of 6% — coupled with AAPL’s market-like beta of 1.06 and attractive valuation — a good sign just got better.
Jim Cramer of CNBC‘s “Mad Money” warned AAPL stock is “off limits for now” because of its reliance on a marginal Chinese consumer — but we’re willing to appreciate the Apple price action as looking even sweeter.
This is a prime opportunity to get an even larger discount on Apple, and here’s how.
AAPL Stock Monthly Chart
Most traders would agree that the AAPL stock’s daily price chart shows shares in a downtrend. But on the monthly view, price action in AAPL is looking a bit sweeter.
Click to Enlarge
Aside from the long-term trendline dating back to the low in AAPL stock in 2009, this zone holds Fibonacci retracements, a two-step pattern (Leg AB=CD), the prior 2012 high and a deep 30% to 40% correction acting as potential support.
The rather wide zone was tested last summer, and now shares of Apple are back in this area of technical value while still maintaining the bullish integrity of the long-term chart.
How to Trade AAPL Stock
We recommend selling the AAPL Feb $97.50/$95 put spread for 50 cents or better.
This bullish vertical allows for effective purchase price of $97 and represents a discount of roughly 8% below Monday’s close of $105.35 and $5 from AAPL’s August mini flash crash low of $92.
If shares of AAPL remain above $95 at expiration, the trader keeps the entire credit and is free to repeat this profitable process if they so choose. On the downside (and quite literally), our defined zone low of $81.50 is still a ways below the AAPL stock vertical spread.
The good news is that due to the limited risk structure of this credit spread, the most the trader can lose is $2 per AAPL spread rather than the $15.50 difference between the breakeven and the outer band of technical support.
This same feature also allows the trader to decide whether they wish to turn the vertical into a long AAPL stock position. Comparing apples to oranges, this type of AAPL stock entry may not sound terrific at first glance.
Consider buying Apple stock for $87, then it crashes to $85 or $83.50. If it gets to the low of zone support at $81.50, nibbling at that sort of value gets our vote.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
