A strategy idea for options trading investors.

Looks like the bout of weakness that seized Apple (NASDAQ: AAPL) shares has all but dissipated. Since cracking its 200-day moving average in mid-June AAPL has staged an impressive comeback rocketing to the upper end of its six-month trading range.

In my June 21 post SPY Takes on Apple in New Index, I highlighted a potential inflection point in the NASDAQ OMX Alpha AAPL vs. SPY Index (NASDAQ: AVSPY). At the time the stark underperformance of AAPL had brought the Index to sharply oversold levels leading to a bullish trade suggestion. Fast forward to Thursday and we have quite the opposite scenario.  The recent out-performance of AAPL has brought the Index to overbought territory as it flirts with probing above the upper Bollinger band.

For starters I would take profits on the originally suggested AAPL July 126-130 Bull Call Spread as it’s just shy of the maximum profit potential. Next, I would consider structuring some type of bearish play on the AVSPY to exploit the current overbought conditions. Since the genesis of this new Alpha APPL Index the upper Bollinger Band has proved a very reliable indicator in signaling when rallies were close to exhaustion. In the coming days traders willing to bet on a slow down in the out-performance in AAPL or a return to underperformance should consider the following trades:

1.  The Conservative Approach:  Enter an AAPL Aug 136-140 Bear Call Spread by selling to open the Aug 136 calls and buying to open the Aug 140 call.

2.  The Aggressive Approach:  Enter an AAPL Aug 136-132 Bear Put Spread by buying to open the Aug 136 put and selling to open the Aug 132 put.

Check an option chain for current prices. Here’s a view of the AVSPY since last December.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions on AAPL or AVSPY.

Follow Tyler Craig on Twitter@TylersTrading.