Update: AAPL: IF SPX Going To 1250 This Week AAPL Should Fill In the Earnings Gap

by Dan August 3, 2011 3:22 pm • Commentary

Well…..the SPX broke 1250 this morning and AAPL followed suit trading as low as $382, problem is it didn’t stay there.  I was thinking about selling out of half this position down there when the Put Fly was .75 bid locking in a gain and making it so I couldn’t lose on the trade…..the market and the stock have since bounced and with the stock at 392, I am taking this position off at .37 for  small gain.…I think there is a good chance, barring any news out of Europe tomorrow that the markets stabilizes a little before the Jobs report Friday pre-opening….This was not what I was hoping for, I got the move but unfortunately time is running out and I don’t want to wait til Friday to make it happen, but will look to a different structure with different time horizon. That’s trading.





AAPL: IF SPX Going To 1250 This Week AAPL Should Fill In the Earnings Gap

The stock has shown amazing relative strength in the last week as the market has been volatile around the debt ceiling debate.  In the last 7 trading days AAPL is up small vs the SPX which is down about 4.5% (chart below demonstrates this).

[caption id="attachment_3743" align="aligncenter" width="300" caption="1 yr AAPL vs SPX from Bloomberg"][/caption]


I want to make a low premium, low risk high potential reward play that AAPL can trade back to 380 (down 3.5%) on Friday’s weekly expiration.  $380 seems like the next support level…..everyone wants to buy this stock on dips and likely place limit order near support, these levels could be instructive for short term targets for tactical bearish trades…..

[caption id="attachment_3749" align="aligncenter" width="300" caption="4 Month AAPL chart From Bloomberg Lp"][/caption]


TRADE: AAPL ($396) Buy Aug5 wkly 385 / 380/ 375 Put Fly for .30***

-Buy 1 AAPL Aug5 385 Put for 1.27

-Sell 2 Aug5 380 Puts at 1.30 (.65 each)

-Buy 1 Aug5 375 Put for .33

Break-Even On Aug5 weekly Expiration:

Downside: btwn 385 and 384.70 lose up to .32m btwn 384.70 and 380 make up to 4.70….Best Case at 380 (down 3.5%) make full 4.70 or 14x your money.

BTW 380 and 375 pay-out trails off and Worst Case stock below 375 lose full .30 premium.

Upside: stock 385 or higher and lose full .30 premium.

TRADE RATIONALE:  no doubt a 5 wide fly in a 396 stock is a little tight to say the least, but I am isolating a technical range that I think the stock could go to if the market were to sell off to support.

***This Trade is not for everyone and clearly a situation where you only want to risk what you are willing to lose…….As always, if this sort of trade interests you, use limits as the bid ask can be wide with the multiple legs……