AAPL – An Update

by CC July 18, 2011 11:02 am • Commentary

Update – July 18th

Since suggesting AAPL trade on Friday afternoon the stock is up a 2%...the rally is getting increasing long in the tooth as we head into the earnings event tomorrow.  Stock’s action in today’s market, while impressive, it also feels like a massive flight to quality. The more fast money that gets in it before the earnings the greater the potential volatility post the event. I want to be prudent here and cover my “wings.” I don’t want to be short puts in anything. If you put this trade on when the stock was $360 on Friday and sold the Sept 330 Put at about 6.00 then it can clearly be covered for a profit. I suggest covering the Put and either own call spreads or calls in Sept if you want to play for a move into potential iPhone5 release.

 

 

 

 

Original Post:

 

AAPL $360 report fyQ3 July 19
-Implied move 4.5%
-Avg over last 8 qtrs ~2.8%

My Thoughts Heading Into the Qtr:
Consider stock replacement or more defensive “bullish” structures to participate in potential for rally into iPhone5 announcement while decreasing your downside exposure.
-Stock is up 16% in a month. recent rally has broken it out of its under-performance to the broader market and now it is up 12% YTD.
-Company should benefit from typical back to school seasonality and the potential for new iPhone could cause for upside guidance for latter half of the year.
-Street estimates fyq3 eps down sequentially, which would be the first time in yrs that has happened…..

-Heading into the Qtr investors will want to know about iPhone and Jobs….they are not likely to get any color on either which coupled with their usual conservative guidance could cause the stock to come in a little….

THIS IS A TRADE STRUCTURE TO CONSIDER IF YOU ARE LONG THE STOCK AND WORRIED ABOUT SOME NEAR TERM VOLATILITY AROUND THE EARNINGS EVENT NEXT WEEK.

TRADE: AAPL $360 Sell Sept 330 Puts to Buy Sept 370 / 390 Call Spread
-Sell the Sept 330 Put at 6.00
-Buy the Sept 370 Call for 12.40
-Sell the Sept 390 Call at 5.90
Structure Costs .50

Break-Even on Sept Expiration:
Downside: 330 or lower put the stock and lose .50 premium
Btwn 330 and 360 lose .50 premium
Upside: btwn 370 and 390 make up to 20 less the .50 and best case above 370 make 19.50

BIGGEST RISK HERE IS BEING SHORT THAT SEPT 330 PUT THAT HAS ABOUT A 20 DELTA TO IT…..SO FOR EVERY DOLLAR THE STOCK MOVES THE OPTION WILL MOVE ABOUT .20…..AS THE PRICE OF THE STOCK MOVES CLOSER TO 330 OR FURTHER AWAY THE DELTA WILL OBVIOUSLY RISE OR FALL…..

THIS TRADE STRUCTURE SHOULD BE CONSIDERED AS STOCK REPLACEMENT WITH THE STOCK UP ON A SPIKE BACK TOWARDS THE PREVIOUS HIGHS….I AM NOT SUGGESTING TO RUN OUT AND GET LONG HERE…..