How hard is it to bet against Apple (AAPL)? It seems that every single major launch from the company is met by a new all-time high share price. This coming weekend launch of the iPad is no different.
Even with the news of a shipping delay with pre-orders not being guaranteed until April 12 rather than the April 3 launch date, today’s $233.87 intraday price was yet another all-time high. Apple’s market cap now eclipses $211 billion.
There is one issue to consider here and with other giant launches: “Buy the hype, sell the news.” Will Apple fall before the launch or after it? That may depend on the market. And on those pesky minutes charts, as well.
Using put options here offers the quickest way to bet on profit-taking, and it keeps you from facing that theoretical unlimited downside if you are short the stock.
Of course, all options expire worthless if they are out of the money. That is why I’m considering this trade merely for exposure, meaning it is a de-leveraged trade. Rather than being long or short the stock, you can just buy one or two put or call contracts going into the event, and potentially add to them next week.
As of today, the AAPL April 230 Puts (AJL 100417P00230000) at $4.65 seem like a better deal than the AAPL May 230 Puts (AJL 100522P00230000) at $10.20. Even the AAPL May 220 Puts (AJL 100522P00220000) at $6.25 seem rather limiting versus the April 230 puts.
The problem is that the time value is going to erode rather quickly for those April puts at a rate of close to 25 cents per day. And the Apple earnings date is likely going to be past the April 16 options expiration date. That means that if you want to bet on profit-taking or a sell the news reaction, you might have to also consider those May 220 puts.
Two other things to keep in mind here are that the iPad launch coincides with a significant bit of economic data and a long weekend for traders.
The stock market is closed Friday, but some markets will be open for part of the day. And, on Friday, we’ll have the non-farm payrolls report, which is expected to finally show growth of 200,000 jobs or more.
If that number turns out to better than expected, then the price gaps next Monday for stocks could be monumental. If the number comes in below expectations, that might just add to the waves of profit-taking.
Given this, the logical choice here might be a straddle, but a synthetic straddle with the 230 put and AAPL April 240 Call (AJL 100417C00240000) is too expensive to make the bet worth it.
We will issue an update on this outlook later in the week as we get closer to the long weekend and the launch.
