Second Event Update:
Taking most of the balance of this trade off at 7.20…..leave small!
Update:
Closing half the put spread here at 4.70, paid 2.00 originally… as the keynote address is here and that was the initial play. Will leave other half on in case keynote disappoints market
Update Sept 29th 2011: Earlier this morning on “quick hits” I mentioned that I closed the balance of my Nov 405/425 call spread at 8.00 when the stock was $399. This trade was a decent winner and a prudent way to get long exposure into a perceived event in a volatile market.
Now with the iPhone5 announcement set for this coming Tuesday Oct 4th, I want to put on a very short term bearish trade in Oct 7 weekly options to “sell the news”. I want to play for a 5% sell off in the coming week, stock is getting tired up here and a lot of good news is in the stock at time where the company faces significant challenges on the management/execution front with Jobs departure and on the competitive side with tablet upstarts abound.
NEW TRADE: AAPL $395 Buy the Oct7 380/370 Put Spread for 2.00
-Buy Oct7 380 Put for 5.00
-Sell Oct7 370 Put at 3.00
Break-even On Oct7 Expiration:
Profits btwn 378 and 370, max gain below 370 make 8.00
Losses: btwn 378 and 380 lose up to 2.00, above 380 lose full 2.00 or less than 1% of the underlying.
TRADE RAQTIONALE: AAPL has a history of running up into product announcments and then selling off the days following…I want to use weekly options to take advantage of this possible scenario playing out again, but want to define my risk.
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. [private]
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.
TRADE:
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
STRUCTURE COSTS NOTHING
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.