Trade Update: Apple (AAPL) All Indications That iPhone5 Launches Mid Oct -Buy Nov Call Spread Risk Reversals and Capture Sept Qtr Earnings Too

by Dan September 21, 2011 3:27 pm • Commentary

Update Sept 21st 2011: Since suggesting this trade last week the stock has rallied 6% outperforming the market.  I want to cover the NOV 350 Put that I sold at 7.10 for 4.25 for a 2.85 profit and sell half of my call spread that I paid 7.10 for at 10.55 (with stock at $417).    Stock has run into the unofficial announcement of the iPhone5, and the expected press event Oct 4….stock could have a little “sell on the news” especially after the run away breakout of the last week….additionally following the fed statement I think we could see a healthy pull back in the market in the coming days….So to review I paid nothing for the call spread risk reversal and made 3.45 on the call spread and 2.85 on the puts…..I want to reduce my tail risk, and take some profits, now I can’t lose on the trade…..

ORIGINAL POST SEPT 15th 2011:  Apple (AAPL) All Indications That iPhone5 Launches Mid Oct -Buy Nov Call Spread Risk Reversals and Capture Sept Qtr Earnings Too

AAPL is just one of those companies where there tends to be more speculation then actual cold hard facts.  They don’t speak to the street other than their 4 quarterly earnings calls, and even then they barely answer their questions.  They don’t speak to the press other than their 3-4 press events for major product announcements which they don’t speak a word about until they actually present the gizmo.  With Jobs gone as CEO the companies lack of communication is not likely to change much, but at least the rumor and innuendo about Jobs is out of the way and the focus of the company can go back to their products and execution schedule.  

For all intents and purposes anything the company does or says in the next couple quarters will still have Jobs paw marks all over it as he has been very involved in the over-site of iCloud, new OS, iPad and iPhone.  So I guess the big question now is execution by the new management.

iPhone 4 is now the longest running phone from the company without a refresh and when u look at estimates for the companies fiscal Q4 with iPhone units expected to be up 30% yoy it doesn’t appear that demand is waning in the least for the device.

I want to continue to have long exposure to the upside for a couple of events and the normal strong seasonality of  back to school into Holiday period, with iPhone launch coming in Oct expiration and earnings coming in Nov expiration.

Stock obviously performs very well up almost 22% ytd and technically looks poised to break out above the previous high set after strong earnings released back in July.   Make no mistake about it though, if we are not out of the woods as far as the volatility from Europe’s debt crisis and our own weakening economy than you may want to look to ways to define your risk while gaining upside exposure.


AAPL ($393) BUY NOV 405 / 425 Call Spread for 7.10, Finance by Selling Nov 350 Put at 7.10

-Buy Nov 405 Call for 15.40

-Sell Nov 425 Call at 8.30

-Sell Nov 350 Put at 7.10


Break-Even On Nov Expiration:

Profits: btwn 405 and 425 make up to 20, above 425 make full 20.00

Loses: btwn 405 and 350 lose nothing and below 350 you are put the stock (down 12% from current levels.)

TRADE RATIONALE: as many of you have noticed I am not a fan of selling puts in this environment as I still see considerable risks to the market.  But I have very few ideas on the long side where I see definable catalysts where the fundamentals are as sound as AAPL’s in this environment.  I have sold puts to buy call spreads on a few situations this year in front of events, usually down 10% and always with at-least a 15 delta.  I like the risk reward here of getting long up a few % or down 12% without a large premium outlay.