Some say you can’t trade Apple Inc. (NASDAQ:AAPL). However, the evidence suggests otherwise. Specifically, one particular Apple stock trade looks appetizing ahead of next week’s iPhone 7 debut.
Let’s take a look.
Just over a month ago, our takeaway on shares of AAPL broached a bearish point of view. I was admittedly wrong. Apple Stock is up about 2% from that point.
Evidence of an overbought rally into chart resistance didn’t look good. So mostly “better-than-feared” analyst relief, rather than more convincing upgrades on the heels of Apple’s earnings results, served to support our bearish position on the tech giant.
I still feel that my prior stance was a well-reasoned one. Nonetheless, it’s time to think differently and trade AAPL not as a long-term holder, but as an opportunistic short-term bull.
AAPL Stock Daily Chart
Over the past few weeks, Apple shares have broken above the 200-day simple moving average and down-channel resistance line. The bullish price action set the stage for a decent rally to fresh relative highs before reversing into a methodical-looking pullback.
Currently, a doji decision candle is confirming a low for the minor correction. This is backed up by Apple stock’s Bollinger Band and former channel resistance, which are acting as technical support.
There is a potentially bearish lower high to consider and possibly a big pre-earnings, bullish gap to fill. But as I’ve offered, the overall situation allows for a low-risk opportunity to get long Apple stock.
How to Trade Apple Stock
Apple’s iPhone 7 debut comes next week. Thus, even a good-looking setup in AAPL could quickly turn sour thanks to event risk. (Though we believe product disappointment has already been baked in.)
After reviewing Apple’s options, a long September $108/$110/$112 call butterfly looks attractive thanks to its positioning and low-risk, high-reward potential. This position trades for about 25 cents, and limits its risk to the debit if Apple stock fails to climb above $108 at expiration — a bit more than two weeks out.
If the worst for the iPhone 7 is priced in and AAPL rallies, a max return of $1.75 or 700% is possible at $110. That’s essentially targeting this month’s recent high of $110.23 as the sweet spot for the spread.
The downside to this Apple stock spread is below $108 or much more unlikely, above $112, as the entire premium paid would be lost at expiration. Additionally, profit expectations do need to be managed.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
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