Sometimes you have step back and smell the roses — or in the case of Apple Inc. (NASDAQ:AAPL), acknowledge a stock which looks ripe for a corrective pullback. Let me explain.
I haven’t always been bearish on AAPL stock. In fact the last time I wrote about the world’s largest company in early July I was bullish. Truthfully, I feel a bit reluctant to switch camps. Maybe that’s the result of offering a modified spread which went from 40 cents to capture $5 for a return of 1,150% in just over a month?
But the truth is during this period, the iPhone 8 has launched to less than rousing good cheer and open wallets. Of course more than a few will tell you there’s no need to worry — the iPhone X is just around the corner and that’s what consumers are really anxious to purchase.
Maybe, but I personally hate the waiting for Godot shtick to make decisions on AAPL stock.
Alas, being open to resetting our expectations based on current conditions is what trading is all about. Sometimes, like today, trading AAPL is at odds with our longer-term investing outlook. But, if we really look at that big picture, it can also provide opportunities when used in conjunction with a smartly designed and limited-risk spread.
AAPL Stock Monthly Chart
Click to Enlarge
Looking at the big picture in AAPL, the monthly view shows an overbought stochastics situation and shares up against channel and various Fibonacci resistance lines after putting together a very similar cup-shaped base breakout to the one from 2012–2015.
If history merely rhymes, Apple is ripe for a decent-size corrective move. And if AAPL puts in more of a repeat performance shares should trade to the $110 – $120 area over the coming months.
Personally, if a corrective move of that magnitude and into technical support did occur, that’s where I’d like to be buying Apple stock as a longer-term bull. But first things first.
Apple Modified Butterfly
Reviewing the Apple options board, shares at $155.40 and given our outlook, I like the idea of approaching AAPL with a long Nov $150/$140/$135 put butterfly. Priced for $1.80, the spread offers a max profit capture of $8.20 if Apple stock finishes at $140 on expiration. Of course, nailing $140 for the max return is a low-probability event.
Some readers might also be thinking a drop of $15 is a far cry from support discussed above. But the reality of an approximate 10% decline is a good deal more consistent with AAPL’s trading tendencies over a shorter duration and given an earnings announcement in late October.
Thus and from a practical standpoint of looking to make a profit on a retreat in Apple shares, it makes sense.
Lastly and in embracing the chance occasion conditions do get a bit more panicked in AAPL, this bearishly positioned butterfly has an asymmetrical vertical design. This allows the trader to keep $3.20 below $135 if a ripe-looking pullback opportunity turns really sour with bulls.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits and feel free to click here to learn more about how to design better positions using options!
