Trade Apple Inc. (AAPL) Stock to the Top

Advertisement

Apple Inc. (NASDAQ:AAPL) is certainly not the only stock currently trading at or close to their all-time highs. Netflix Inc. (NASDAQ:NFLX) and Facebook Inc (NASDAQ:FB) are also in that “investor’s heaven” neighborhood.

Trade Apple Inc. (AAPL) Stock to the Top

Source: Shutterstock

But what makes AAPL seem like a better bet to move higher or at least not lower, is the fact at the time of this writing, the stock is almost trading $4 higher above its last resistance level at around $140, and it has hardly pulled back at all during its current run higher.

If you read William White’s article on Apple Inc., there are at least three potential rumor mill items for traders and investors to consider going forward. The first is that Siri will have a more prominent role. The second is that the new iPhone 8 will have plenty of new features and the last is that the company has released several new betas to developers.

As rumors and facts go, these can be beneficial or detrimental to the AAPL stock price. The detrimental part is what may give this options strategy an edge.

What options give traders among other things is flexibility. An option strategy can be structured to profit even if the underlying does not move in the intended direction. Certainly, that is not a possibility with stock because a direction needs to be established before stock is purchased or sold short and a profit can be realized.

An Option Trade Idea for AAPL Stock

The Rationale: Selling option premium and buying option premium is a way to profit with options that gives the trader three out of four ways to profit. In this case, consider selling a put option that would expire worthless if the stock closes at or above the option strike price.

The buyer of a put option has the right to sell the stock at a certain price up until expiration. Clearly if the stock is trading above that level at expiration, it would be advantageous just to sell the stock in the market and the option would expire worthless. That is the goal of the put premium seller. Just in case the stock does move lower, a lower strike put with the same expiration is purchased to curtail possible bigger losses.

Take a look at the hourly chart below. If AAPL stock does move lower again, previous resistance needs to act as current support. If that happens, this trade idea will be successful and profitable. Consider it to be a bearish sign if AAPL closes below the $140 level again.

The Trade: Sell the April $140 put and buy the April $135 put for a credit of 55 cents or better.

The Strategy: The maximum potential profit for this trade is 55 cents ($55 in real terms) if AAPL is trading at or above $140 at April expiration. The maximum loss is $4.45 ($5 – 55 cents) if AAPL is trading at or below $135 at April expiration. Breakeven is $139.45 at expiration based on a credit of 55 cents.

When selling option premium as part of a spread, it is better for the premium to be more expensive for a greater potential profit. This is measured by implied volatility.

Currently, the 30-day IV is above the realized level, which means that options are possibly priced more than they should be. This is a good thing for this trade idea. Apples can be good for your health and they can also make you some money. Good luck!

John Kmiecik is the head options instructor for Market Taker Mentoring, and co-author of the eBook 3 Secrets to Making Money in Any Market. Get your complimentary copy of his option trading eBook here. He can be reached at john@markettaker.com.  At the time of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/trade-apple-inc-aapl-stock-to-the-top/.

©2024 InvestorPlace Media, LLC