Trade of the Day: Chase AAPL Stock Higher at Your Own Risk

The recent rally in Apple stock is a warning signal

Shares of Apple (NASDAQ:AAPL) have rallied more than 10% in the past few weeks alone, and remain higher by roughly 54% year-to-date. It has been another impressive year for AAPL stock, but it has now reached a critical technical inflection point just as the company is about to report earnings. Chase AAPL stock higher from here at your own risk.

Source: Shutterstock

One of the most important lessons in trading and investing I have ever received was when a mentor of mine told me that this business is all about syncing ones time horizon with ones risk profile. In other words, trades must be kept trades and with tighter risk parameters than longer duration investments.

To wit, shares of Apple have been a great investment over the years and those that stayed the bullish course are well in the green. Along the way, however, the stock has experienced notable drawdowns and sideways periods. Thus the stock has offered both traders and investors plenty of opportunity along the way, but only if those players properly synced investment time horizon with risk profile.

Apple Stock Charts

Source: Charts by TradingView

At the current juncture AAPL stock, thanks to it’s good year-to-date rally and an even steeper ascent in recent weeks, has roughly reached the upper end of its longer-standing trend as marked by the purple channel lines.

Given this and the fact that there is no historic precedence where this stock managed to break and hold above this channel, I don’t see good reward-to-risk to buy it at current levels. From an investment perspective, all else being equal. The chart shows that somewhere toward the middle or lower end of said channel is a better spot to buy AAPL stock.

Source: Charts by TradingView

Apple is scheduled to report its next batch of earnings on Oct. 30 after the close of trading for the day. The options market currently implies about an $11 move in the stock in either direction. The two purple horizontal lines on the daily chart represent where the expected move on the upside and downside is.

Given where AAPL stock currently sits in the bigger picture, i.e. on the above multi-year chart, I am inclined to either short the stock or buy puts or put spreads, particularly if the stock rallies further following the earnings report. A next downside target is the $230 area, possibly followed by the low $220, which is where the stock’s yellow 50-day simple moving average comes in.

The highest probability trade, however, that sets up well for this position in AAPL stock is to sell an out-of-the-money call spread (options credit spread) in a very specific way. I am hosting a special webinar Wednesday, Oct. 30 to go over this setup in detail. Register here.

Special free webinar: How to generate stock market income with options credit spreads like a pro. Register HERE

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