An Apple Inc. Today Keeps the Bears at Bay

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I’ve been a long time supporter of Apple Inc. (NASDAQ:AAPL) stock on major selloffs. I’ve successfully traded it on emotion for years. I went long AAPL when everyone else hated it, and I won every time.

aapl tech stocksMy conviction, however, with the long term dominance of AAPL wanes the longer it stays under Tim Cook’s leadership. Put simply, Cook has failed to maintain the forward momentum Steve Jobs started.

Yet, I still see a valuable cash machine with a solid financial position to carry it through the next year or two. This is thanks to its fans, not to the company’s innovation.

Trading Apple stock, I have to consider the risk of equity markets in general. They are on thin ice, especially if the Federal Reserve doesn’t cancel the tightening cycle. So I find myself preferring longer dated trades as they are easier to manage.

Today, I want to cautiously go long Apple. I am not about to buy AAPL on a day it’s up over 2%, so I turn to the options market. By using options, I’m allowed several other ways I can do this.

So, I will share several trade setups to suit differently sized accounts and risk appetites. Personally, I prefer longer-dated options, especially those with the biggest buffers from the current AAPL stock price. There’s less “drama” involved. When selling spreads, boring is beautiful.

Here are two relatively conservative trades with over 95% theoretical chance of success:

Trade #1: Sell the AAPL Jan $90/$87.50 credit put spread. This is a bullish trade for which I collect 25 cents per contract. The potential yield if successful is 10%. A low-risk trade with a 10% yield is the kind of “boring” I enjoy. This trade carries a 16% price buffer from current level.

Trade #2: Sell the Feb $85/$80 credit put spread. This also is a bullish trade. I collect 37 cents per contact to open the trade. This has a 21% buffer from current price which is bigger than the previous trade. So in a sense, it’s safer from an incident perspective but has more money at risk should Apple stock fall through $80.

AAPL Stock Chart
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If I believe that AAPL $100 will hold through February then I can chose something a little more aggressive. Here are two more aggressive trades with over 80% theoretical chance of success:

Trade #3: Sell the Feb $97.50/$95 credit put spread. This also is a bullish trade but here I collect 60 cents to open. The price buffer from current price is a mere 9%, which makes it more likely to see pressure at some point especially around earnings. But the reward is that the yield jumps to 30% if successful. For this I need Apple to stay above $97.5 per share while I am in this trade.

Trade #4: Sell the Feb $90 naked put. This is the most aggressive from a dollars at risk perspective. I only sell naked puts if I am willing and able to buy the stock at the strike price chosen. So if Apple stock falls below $90 per share I would be on the hook for further losses. I collect $1.70 per contract for the risk, which will require some margin against it. The worst case scenario is that I get assigned AAPL stock at a 16% discount from current level.

I am not obliged to hold any of these trades through to expiration. I can close any of them at any point for partial gains or losses. In fact, I have successfully done this several times this year already.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and StockTwits at @racernic.

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Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/aapl-apple-stock-iphone-7-options-trading/.

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