Trade Update: AAPL Dec Put Fly….Not Done With This One Just Yet

by Dan November 23, 2011 3:37 pm • Commentary

Trade Update Nov 23rd 2011 at 3.40pm: I am selling half of this put fly at 2.40 with the stock at 368.70 for a .70 profit.  This was not the sort of profit I was playing for, but I am becoming increasingly nervous of being too short here, especially with structures that could be difficult to manage such as a butterfly.


NEW TRADE Nov 16th 2011: AAPL had a fairly impressive bounce off Monday’s lows of about 380, But I am not done with this one yet on the short side…..I still think the “Bloom is Off The Rose” here and that the chart still looks fairly heavy. 

TRADE: AAPL ~$388 Bought DEC 375/360/345 Put Butterfly for 1.70

-Buy 1 Dec 375 Put for 8.95

-Sell 2 Dec 360 Puts for a total of 10.16 (5.08 each)

-Buy 1 Dec 345 Put for 2.89

Break-even On Dec Expiration:

Profits btwn 373.30  and 360 make up to 13.30, at 360 make full 13.30 and payoff trails off from 360 down to 346.70

Losses below 345 and above 3375 lose full 1.70 in premium paid…btwn 355  and 346.70 lose up to 1.70 and btwn 376.70 and 375 lose up to 1.70

* As always I used limit order to execute, especially in multi-leg order, the bid ask is wide and there is no reason I should not be able to get executed inside the market.

-I guess I would rather be Short AAPL than long it here, and I am going to use the profits from my Nov Put Fly that I closed yesterday to help finance this bearish bet.  I recognize that the sentiment in the name got fairly bearish of late, but maybe for good reason.  Don’t forget how overwhelmingly positive it has been for 5 yrs!!!

-I chose 360 strike to isolate/target as I think if AAPL is going to break down it will likely test the 200 day moving average that looks like good support at about $362.   Also the high strike I am long is right below the trend-line it is sitting on.



2nd Update Nov 15th, 2011:  With AAPL up over 2% today it appears that the large sellers that have been leaning on the stock for the last few days has either stopped or gone to lunch….I am going to close the balance of this position at 2.35.  I thought I had this one but at this point, I think it is prudent to take the profit and run.

Update Nov 14th, 2011:  Ok people you know the drill, with AAPL at about 382 and 4.5 trading days to Nov expiration I have the opportunity to sell half of my Nov 390/380/370 put fly for more than double what I paid for it on Nov 2nd.  I paid 1.10 and I just sold half at 2.50 for 1.40 profit.  Now I will leave on the other half and try to realize, the full width, or at least get the max profit I can make btwn now and Friday’s expiration.  So I might be a little early here, but making a sale here on half the position, locks in a profit and ensures that I can’t lose money on the trade, while leaving plenty of profit potential.


Update Nov 10th, 2011: Lots of questions regarding AAPL today and its counter-trend weakness….A firm named Cleveland Research was out with a note this morning that Bloomberg summarized here:

Cleveland Research cut Apple iPad
unit ests. for Dec. qtr to 12m vs prior 14m.
• Visibility from supply chain has softened in last several weeks with “surprise” revisions to orders, visibility: Cleveland Research
• IPhone demand remains strong; maintain Dec. qtr est. 25m units, FY12 112m units
• Cleveland Research cut AAPL Dec. qtr EPS to $9.53 vs. avg. est. $9.76; FY12 EPS to $35.13 vs. avg. est. $34.73
• AAPL down as much as 3.2%, lowest since Oct. 10, on 66% of 3 mo. avg. vol.; AAPL shrs have fallen 4% in last 5 days vs SPX down 2.1%
• Earlier AAPL fell below 50-DMA
• Cleveland Research rates AAPL buy

I have never heard of this firm so I can’t speak to their credibility or their accuracy. I do know that they issued a report yesterday on BBY that was supposedly the reason why the stock was up in a down market.  I think today’s weakness says more about sentiment in the name as opposed to the conviction in Cleveland Research’s opinion.  Since Jobs death and their disappointing qtr reported last month the stock has been stuck in a range btwn 390 and about 408.

Technically the chart looks challenged near term breaking the uptrend line and a fairly significant support level.  Next level of support looks to be about 378.

1 Yr AAPL chart from Bloomberg


As for the Nov Put Fly I am long, it is currently worth about 1.75 vs stock at ~385.50.  I paid 1.10 for the 10.00 wide fly that expires in 6 trading days.  At this point I feel like I have this right where I want it and will hold out on doing anything as the commissions make it kind of cost prohibitive to trade in and out for a profit that doesn’t equal at least a double.


Original Post Nov 2nd 2011: AAPL Feels A Bit Heavy, Short Term Bearish Structure That Benefits from a 4% Decline By Nov Expiration

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.