AAPL: If Market Can Stabilize Apple Should Outperform and Retake $400 on iPhone5

by Dan August 9, 2011 8:47 am • Commentary

AAPL is just one of those stocks that everyone wants to own whether it is making all time highs at 400, or falling 3% a day in the wake of the market turmoil over the last week……The chart below demonstrates the relative performance that AAPL has shown in the last month since the SPX topped out on July 7th, or almost 17.5% ago……AAPL IS ACTUALLY UP IN THAT SAME TIME PERIOD, BUT NOW DOWN ~12% FROM IT’S JULY 26TH ALL TIME CLOSING HIGH.

1 yr SPX vs AAPL from Bloomberg


Last Night on CNBC’s Fast Money program I offered a way to play for a potential rebound back towards the highs by Sept expiration.  I wanted to look to Sept as it is very likely there will be the announcement of the iPhone5 (possibly followed by the release) in that time period.  AAPL is just one of those stocks that runs in anticipation of huge product releases.


The goal here is to define my risk while offering a structure that has a relatively palatable payout potential.

TRADE:  AAPL $355: Buy Sept 375/400 Call Spread for 7.00

-Buy Sept 375 Call for 11.00 and

-Sell Sept 400 Call at 4.00

Break-Even On Sept Expiration:

Losses btwn 375 and 382, lose up to 7.00, below 375 lose all 7.00 (or 2% of the underlying)

Profit btwn 382 and 400, make up to 18.00, above 400 make full 18.00

TRADE RATIONALE:  Readers of this site know that I continue to be cautious here and fear more pain to come, and even names like AAPL are not immune the massive gyrations of the market….. even though the stock has held up well on a relative basis over the last month, if there is a second leg of this downdraft the stock will not be spared.  Even with implied vols elevated, I want to buy premiums to play stories like this in markets like this in an effort to define my risk.