Go Long in Apple Inc. (AAPL) Stock on the Post-Election Swoon

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The stock market reaction to the Donald Trump win in the U.S. election surprised most experts. The small caps set new highs on the back of strength in concentrated sectors like financials and industrials. Mega-techs, on the other hand were left in the dust.

Go Long Apple Inc. (AAPL) Stock on the Post-Election Swoon

The PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) lagged as prior champions like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) were sold to raise funds and rotate into the hot sector breakouts.

AAPL stock is now $10, or 8%, lower than its high of October. This should be an opportunity to set a bullish Apple trade as long as the stock markets in general holds up into quarter one of 2017.

Fundamentally, I don’t think that Tim Cook is the guy to take Apple stock into another home run like the iPhone. I think that he is a good operator but lacks the vision that Steve Jobs had.

Nevertheless, it’s obvious that for the mid-term, AAPL is a solid company with excellent metrics and should be able to work well for several quarters.

Technically, as long as Apple stock continues to hold recent lows, I don’t see imminent debacle scenarios in price action.

AAPL Stock Chart
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Even then, I like to leave room for error. So I am not about to buy AAPL stock at $110 per share going into another possible Federal Reserve rate hike in a few weeks.

Luckily, the options markets allow me to structure trades with a buffer.

AAPL Stock Trade Idea

Trade No. 1 — The Bet: Sell AAPL Feb $100/$97.50 credit put spread. This is a bullish trade for which I collect 43 cents per contract. This would be a 20% yield on money risked. The trade has a 9% buffer from current price, which translates into about an 85% theoretical chance of success.

Usually I like to balance my trades with an opposing trade like a credit call spread. In this case, since I don’t think AAPL stock is a disaster waiting to happen, I’d rather either hold out or delay an entry point into a bear call spread of the QQQ instead.

Trade No. 2 — The Hedge (optional): Sell QQQ Dec $119.50/$120.50 credit call spread. This would be a bearish trade for which I collect 14 cents per contract. I need QQQ to stay below my sold call spread, and I can earn 13% on money risked.

I am not required to hold these trades into expiration. I can close either for partial gains or losses at any time.

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/2016/12/apple-inc-aapl-stock-swoon/.

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