A quick-to-form and sweet pattern in Apple Inc. (NASDAQ:AAPL) has officially turned sour on the price chart, which means opportunistic, bearish Apple stock traders can use a limited and reduced risk put debit spread to their advantage.
Let me explain.
In a market that’s increasingly adept at rapidly shifting gears or what some might label schizophrenic behavior, Apple stock’s action over the last month may be the icing on the cake.
From showing weak, canary-like tendencies in late January and early February, AAPL has led the charge higher with its demonstration of relative strength. In fact, with the S&P 500 roughly 5% below its late January high, Apple stock hit a new all-time-high in Tuesday’s session and it’s now closer to being the first company to reach a market capitalization of $1.0 trillion.
Behind the aggressive price swing, investors are apparently no longer troubled by AAPL’s recent and disappointing corporate confessional, which featured falling iPhone shipments, weak guidance and combined drag on bulls envisioned iPhone X super cycle.
Today’s more optimistic narrative in Apple stock is one that has turned prior worries on their head. Now investors are applauding the weaker outlook as “hittable.” At the same time, inventory issues are no longer problematic given new bullish data out of Asia that’s apparently more inviolable than earlier bearish offerings.
Lastly, a plug from AAPL shareholder Warren Buffett stating the company is an “extraordinary consumer franchise” is obviously as sweet as a cherry on top for investors wanting something tastier than a sour-looking stock chart.
Apple Stock Daily Chart
From a troubling breakdown of channel support and then 200-day simple moving average support, Apple stock has quickly moved into a potential bearish double-top pattern. The setup follows shares racing higher over the last couple weeks from a “V-bottom” punctuated by a volatile, but bullish hammer candlestick.
Looking forward, the technical observation remains one that’s concerned with downside risk in AAPL based on previously discussed time and price symmetry found on the larger monthly chart time frame.
Apple Stock Bear Put Spread
I can’t say I saw Apple stock’s bottom playing out as it did. But a couple days prior to the aggressive bottoming pattern a detailed shorter-term bear put spread did move in-the-money and offer bearish traders an excellent profit opportunity; however, it was even shorter-lived than our options combination.
Given our ongoing sour view of AAPL, but always appreciative of limiting and reducing position risk, a bear put spread is still an attractive way to play the stock for downside without the open-ended risk of shorting shares.
Reviewing the Apple options board, one combination favored is the Mar. 23 $175 / $167.50 put spread. With shares at $178.39, this vertical is priced for $1.57, or less than 1% of Apple stock risk. The spread is less than 2% from taking on its first bit of intrinsic value and if conditions do in fact sour, this vertical offers a max gain of $5.93 at expiration below $167.50.
Disclosure: 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.