Are you fearful of missing the next bullish move in Apple Inc. (NASDAQ:AAPL), but at the same time aren’t convinced AAPL stock has made a technical low? The good news is there’s an Apple options spread combo that may help with that dilemma. Let me explain.
AAPL stock, along with most U.S. equities, enjoyed a nice relief rally Monday on the back of the FBI confirming for a second time that Hillary Clinton’s email improprieties may have been naughty, but they’re not criminal in nature.
But will the rally in Apple stock continue? On the macro level, there’s still the actual election. Could there be a Brexit-like surprise or a coupe within Congressional system? Then there’s the all-important retail selling season to consider later this month, then December’s FOMC decision, and, and, and….
The point is there’s a lot of uncertainty facing investors.
What’s more, that’s not even trying to figure out AAPL stock based on company-specific channel checks or rumors of new products and the likes, which I personally find difficult at best to keep track of.
Lastly and not to confuse matters, despite Wall Street saying it abhors uncertainty, “climbing a wall of worry” happens often enough to support not wanting to get left behind because we’re waiting on some enigmatic RSVP regarding market clarity. So, what’s an AAPL stock trader to do?
AAPL Stock Daily Chart
Some AAPL stock traders will invariably rely on the price chart in order to gain clarity. On that note, and not a Samsung (OTCMKTS:SSNLF) Note 7, mind you, Apple bulls may be optimistic based on a classic-looking uptrend that’s developed since shares hit a year-to-date low in May. I can’t say I blame them.
On the other hand, conditions aren’t picture perfect in AAPL stock either. Shares have broken an up-channel support line and 50-day simple moving average in recent days. Both might act as overhead resistance from roughly $111 – $112.50.
If Apple stock does fail, a full-blown reversal to the downside could find shares on their way to test the bullish iPhone 7 “pre-order” news gap from Sept. 14. That’s near $105.50 and would put a 50% retracement in play as well.
The good news is if that sort of additional testing does occur, as an AAPL bull you don’t have to suffer the bearish consequences like a long stock trader if you use Apple options to your advantage.
AAPL Stock Vertical Combo
For bulls who share our concern of AAPL’s ability to clear resistance, don’t want to be left out if Apple does rally strongly, but also want to buy shares on weakness; the Weeklys Dec 9 $113/$115 bull call and Dec 9 $105/$102 bull put combo is attractive for a 22 cent debit or better. The small outlay would be lost at expiration if shares are between $105 and $113.
On the upside, the expiration breakeven is $113.22 and modestly above resistance. However, if Apple rallies 4.1% to $115 or higher, this bullish trader captures $1.78, or more than 800% in a month.
Traders might consider buying two spreads relative to a 100-share purchase of AAPL stock. The profit would still lag owning shares outright, but with a fraction of the risk if it cratered.
Speaking of downside risk, if the bull put spread goes in-the-money this trader is positioned to buy Apple stock on weakness at $105.22 as shares test technical support. That’s nice.
Even nicer, during the life of the spread this trader never pays more than $2.22 above the going AAPL stock price. Bottom line, even if shares of Apple tumble far below $102, the protective put mitigates the damage to a defined amount. Now that’s some good food for thought!
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.
