New Trade AAPL – Pressing the Short, Stock Should be Down More

by Enis July 25, 2012 10:14 am • Commentary

We did a ton of work on AAPL yesterday (analyst commentary, technical assessment, and Dan’s trade idea), so we felt prepared for whatever the market threw at us today.  Sometimes, the easier trade is to wait for the event, and then trade the reaction.  That’s what I’m going to do in this case.  I think AAPL has some catch up to do on the downside based on that poor earnings number, despite what the optimists say about the coming product cycle.

Guess what – everyone knows about the product cycle.  What’s more concerning is that the sales momentum globally has slowed, and as I said in QuickHits, AAPL is a huge winner for fund managers across the world, who are going to be quick on the trigger to reduce their exposure to this behemoth on any signs of weakness.  I think we’ve seen those signs, and I think they’ll hit the sell button.  

Vol has come down to 25 in August, which I think is a decent level to buy some premium, especially with the VIX still around 20.  Here’s the trade:

TRADE: AAPL ($574) Bought the Aug 555 / 535 put spread for $4.25
  • Bought 1 Aug 555 put at 7.25
  • Sold 1 Aug 535 Put at 3.00

Break-Even on Aug Expiration:

Profits btwn 550.75 and 535, make up to 15.75 at 535, with max gain of 15.75 below 535

Losses btwn 550.75 and 555 of up to 4.25, max loss of 4.25 above 555


Trade Rationale:  AAPL is likely to at least test the 550 support level over the next few weeks, and might test the 530 low from May as well.  In any case, this is a cheap way to play for more downside, though I would point out that I’m likely to get out of this trade on any profits relatively quickly because I still think AAPL is in consolidation mode after the big run-up to start the year.