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Part of the reason for the underperformance of the Nasdaq this week is that Apple (NASDAQ:AAPL) shares gapped down to the $170 level on Tuesday and ended lower by 4.4 points, or 2.5%. Shares then tested a low of $169.71 on Wednesday before closing unchanged.
Component-suppliers to Apple also dropped sharply, as it was reported that the company would cut its sales forecast for its new iPhone X model.
I don’t think we can draw any conclusions about the holiday shopping season from Apple alone, as many stocks in the broader retail sector had a strong showing this week. We may be able to gather some additional clues about consumer spending over the next few sessions, but we won’t get the next retail sales report until the second week of 2018.
However, with the stock holding support at its 50-day moving average, the opportunity I see today is a bullish put credit spread on Apple (NASDAQ:AAPL):
Using a spread order, sell to open the AAPL Jan. 19th $160 put and buy to open the AAPL Jan. 19th $140 put for a net credit of about $0.50.
Note: There are several January expirations available for AAPL options. Be sure you are opening the monthly options that expire on Friday, Jan. 19, 2018.
Put credit spreads like these are bullish positions that involves writing (selling to open) an option and simultaneously purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.
Ultimately, you want the underlying share price to stay above the upper strike price of the spread. In this case, we want AAPL to stay above $160 through the Jan. 19 expiration. As long as that’s the case, we’ll ultimately walk away with full profits.
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Ken Trester is editor of the popular Maximum Options trading advisory. If you act now, you can take advantage of our limited-time $29 for 2 months Holiday Savings Special. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.