Both on and off the price chart, Tuesday was a very good day for Apple (NASDAQ:AAPL). But obstacles do remain. If you want to nibble on Apple stock in today’s volatile environment, let’s explore three ways to position with stronger risk-adjusted returns.
Gravity was no match for Apple stock on Tuesday. Shares of the tech giant and second-largest company in the S&P 500 finished solidly higher by 4.25%. That compares favorably to the broad-based index’s own gain of around 1.50%. Apple also easily topped reactions in excess of 2% for market-weighted peers Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
The bullish price action in Apple stock wasn’t without cause either. The Trump Administration announced it was backing away from its imposed Sept. 1 tariff of 10% on certain Chinese goods and pushed the levy threat out to mid-December.
The removed albatross includes products like iPhones and MacBooks within Apple’s electronics fiefdom. Further, with Apple known for its practice of September product releases and the all-important holiday sales season in Q4, Tuesday’s revised directive sounds like a big deal for Apple and consumers.
But before you start singing “Deck the Halls” and thinking about yuletide cheer, the news isn’t picture perfect. For one, there is a volatile POTUS that has made a habit of playing political warfare out of the left field.
Additionally and on a company-specific note, Tuesday’s 10% levy delay wasn’t comprehensive. Newer Apple must-haves such as AirPods, Apple Watch and HomePod, which fall under smaller electronics, didn’t make the cut.
Lastly and for today’s Apple stock investors, while Tuesday’s price action was strong and looks promising for more to come, a couple obstacles exist there as well.
Apple Stock Weekly Chart
A higher high and higher low scored over the past couple weeks in AAPL bodes well for investors as it confirms a bullish trend is underway. And with shares less than 4% above last week’s hammer pivot and stochastics looking overall supportive, despite Tuesday’s big gain, Apple stock isn’t extended either.
The immediate risks facing Apple bulls on the price chart are being able to clear a former trendline, and the corrective base’s 76% retracement level. Shares will then need to clear a bearish pattern hangman candlestick whose body formed beneath the Fibonacci level. A failure could quickly turn today’s emerging uptrend into a more bearish higher low double top formation relative to the October peak.
Alternatively, a continuation of the rally in AAPL stock sets up a breakout to new all-time-highs from a fairly healthy and constructive-looking base of nearly one year in duration. Given the circumstances, and for investors that are bullish, I have three trade ideas to construct a better risk-adjusted position.
Three Long Strategies in Apple Stock
The first strategy simply buys stock today. To keep at arm’s length from overall heightened market volatility, while still minimizing downside exposure and technical damage to AAPL’s price trend, I’d propose using a $13 stop loss beneath $196. That works out to well-contained exposure of 6% and only exits if the body of last week’s hammer candlestick is penetrated.
For investors that want to set an absolute limit on their downside risk in Apple stock while retaining upside exposure, two options spreads can help with that.
The first of these two strategies is buying an intermediate dated AAPL December $230 / $245 call spread for $3 or less. The positioning of this spread above technical resistance drastically reduces downside risk to about 1.5% of Apple stock while offering a maximum return of 400% and profit of $12 above the higher strike.
The second AAPL options spread involves selling the December $200 / $195 put spread and simultaneously buying the December $235 / $245 call spread for even money or better. This packaged combination has characteristics of the two other strategies. At expiration no profit or loss exists in-between $200-$235. Above $235 profits begin to build up to a max gain of $10. And below $200 losses start to accrue, but are capped to $5 of risk beneath $195.
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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.