Thus far, the short life of Blue Apron Holdings Inc (NYSE:APRN) as a public company has been pure misery. It has known nothing but falling prices. APRN stock is now down 40% since topping out at $11 on the day of its initial public offering — and it has been only two-and-a-half weeks, for heaven’s sake!
Blue Apron’s latest setback arrived yesterday on news that Amazon.com, Inc. (NASDAQ:AMZN) was getting in on the meal-kit delivery service. And as many a retailer and grocer can attest, AMZN is a market-share-stealing, death-dealing competitor.
Analyzing APRN shares here is tricky. Blue Apron obviously burst onto the public scene at much too high of a price and is in the process of finding its real value. And with a mere 12 daily candles to dissect, it’s not as if one can perform any type of technical analysis.
Heck, we don’t even have a bona fide pivot yet, let alone a trend. It’s been an uninterrupted, one-sided slide. And without sufficient price action, there simply isn’t anything (technically) to analyze. No trend, no support or resistance, and certainly not any chart patterns.
Nonetheless, the volatility of Blue Apron beckons to opportunity-seekers. If we can get on the right side of a stock that’s shaking and baking as much as APRN stock, then big profits await.
How to Game Blue Apron
In my mind, there are two things we can try to game here. First, APRN is bound to find equilibrium at some point. And despite Amazon’s unwelcome entrance into the space as well as the stock’s richly priced IPO, that “point” is going to be somewhere above zero.
Even if it is destined to flirt with zero down the road, it isn’t happening anytime soon, so let’s not get ahead of ourselves. It’s altogether more likely that bargain hunters swoop in, shorts run for cover, and we get a true bounce.
Now, whether that materializes at $6, $5 or $4 remains to be seen. But I’m willing to bet it happens sooner than later.
Second, the stock’s options carry substantial premiums. And why shouldn’t they? Blue Apron shares are down almost 50% in less than two weeks. Those juiced-up premiums mean traders who are willing to step and embrace risk here will receive a pretty penny.
It’s nice that the powers that be have listed options on APRN so quickly. With a daily average volume north of 5 million shares, it certainly has sufficient activity to justify it. And despite only being around for a few days, the options board is quite active. Bid-ask spreads are tight, and open interest is sufficient for most retail traders.
Embrace the Odds and Bottom-Fish APRN Stock
If you’re fishing for a bottom in Blue Apron, don’t buy the stock outright. You can get paid well right now for your willingness to buy shares at a lower price.
Sell the Aug $5 puts for 30 cents or better. The initial margin requirement should be around $50, which means the potential return on initial cost is a mouth-watering 59%.
- 3 Stocks to Watch on Tuesday: Bank of America Corp (BAC), Advanced Micro Devices, Inc. (AMD) and Netflix, Inc. (NFLX)
It’s very rare to see such a high return selling puts, but thanks to Blue Apron stock’s low price tag, the collateral required is minimal.
If APRN stock sits above $5 at expiration, you’ll capture the max reward of 30 cents. If the stock sits below $5, you’ll be required to buy shares at an effective purchase price of $4.70 which is a 29% discount to Monday’s closing price.
If you’re not a willing buyer at those prices, then I suggest closing the trade if APRN falls below $5.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.