AAPL Feels A Bit Heavy, Short Term Bearish Structure That Benefits from a 4% Decline By Nov Expiration

by Dan November 2, 2011 2:41 pm • Commentary

Since disappointing on earnings and guidance 2 weeks ago, AAPL has been stuck in a 10 point range btwn 406 to 396, down about 5 or so % from the all time highs.

Technically, the chart looks fairly toppy as it has below a trend-line that dates back to June and now below a recent support line of about 400.  (click on chart to enlarge)

1 Yr AAPL chart from Bloomberg

I think the news this week will continues to get worse as many investors will likely be disappointed by the ECB and the outcome of the G20 meeting, i want to tactically short names that I think could be vulnerable over the next couple trading days….AAPL looks ripe for a sell off, barring any positive company specific news.

I actually would like to get long AAPL on the next pull back as we head into the holiday selling season as I suspect AAPL products like iPhone and iPad will be on most gift lists.

But in the meantime, I want to look for a low premium way to benefit from what I suspect could be some weakness in the name in week to come.

TRADE: AAPL ~$397 Buy NOV 390/380/370 Put Butterfly for 1.10

-Buy 1 Nov 390 Put for 7.95

-Sell 2 Nov 380 Puts for a total of 10.00 (5.00 each)

-Buy 1 Nov 370 Put for 3.15

Break-even On Nov Expiration:

Profits btwn 388.90 and 380 make up to 8.90, at 380 make full 8.90 and payoff trails off from 8.90 down to 371.10

Losses below 370 and above 390, lose full 1.15 in premium paid…btwn 370 and 371.10 lose up to 1.15 and btwn 388.90 and 390 lose up to 1.10

TRADE RATIONALE: stock is in a funk and I think all of the news in OCT in the name is still playing its way out as investors reconsider the company’s opportunities as it goes forward without it’s founder Steve Jobs.  I am targeting a low premium way to play for the stock to move back to support about 4% from current levels

This is not a high conviction trade but I like the Risk Reward of paying 1.10 to make 8.90 if the stock is down 4% in the next 2.5 weeks.

As always I use limits as the bid ask is fairly wide and I usually get filled inside the offer.