Trade Update $AAPL: Closing Dec Call Butterfly for Small Gain, iCan’t Take the Lack of Movement

by Dan November 19, 2013 1:36 pm • Commentary

A few weeks a back I wanted to make a bullish play in AAPL heading into the holiday selling season.  Since I bought the near the money Dec 525/550/575 Call Butterfly on Nov 1st (below), the stock has gone nowhere, but the trade is actually profitable due to the decay of the guts of the fly where I am short 2 calls.

Despite reporting a Sept qtr that was better than downbeat expectations, the market seems to be concerned with the poor mix btwn iPhone 5c and 5S, the lack of supply of the 5s, the very limited release of the iPad Mini Retina, and very little color on iPad Air sales.

More disturbingly my trade was conceived with the notion that AAPL was getting a little bit of its “mojo” back having gotten almost all the way back to unchanged on the year.  Well the stock has flat-lined over the last couple weeks in what feels like a 2% range. Basically hovering around the 525 line. It shows no sign of being able to move higher than that in any significant way anytime soon.

Therefore, I am going to take the small profit and move and look for a different entry, possibly with a different structure.

ACTION: Sell to Close AAPL ($519) Dec 525/550/575 Call Butterfly at 4.90 for a .90 gain.



Original Post Nov. 1st, 2013:  New Trade $AAPL Picking

AAPL’s hotly anticipated fiscal Q4 earnings report was met with a big ol’ thump this week, with the stock down a little more than 1% since last Friday, and the one day event move dramatically under-performing options market maker’s expectations of almost 6%.

Our trade into the print was to sell the implied move by way of an Iron Condor (Adult Swim Trade $AAPL: Selling the Implied Move) as we thought that after the stock’s recent run back to unchanged on the year would have some resistance at that level, and also that the expectations were dampened by the company’s Sept pre-announcement. We also thought that upside to Q1 guidance was likely to be muted by product constraints with the new iPhone 5S and the iPad Mini. All this with the backdrop of an Icahn put at $525 and the significant support level of 500 below.

It is my view now that the stock will consolidate a bit here but possibly make a run to unchanged on the year and possibly the previous 2013 highs of $555 as we get to the meat of of the holiday selling season on the infamous Cyber Monday on Dec 2nd.

I want to make a bullish bet with defined risk that AAPL will participate in any rally predicated on positive consumer sentiment into the holiday season as the recent product refresh places them at the top of most’s must haves lists this holiday season.

Trade:  AAPL ($518.50) Bought Dec 525 / 550 / 575 Call Butterfly for 4.00
  • Bought 1 Dec 525 Call for 15.00
  • Sold 2 Dec 550 Calls at 7.00 each for a total of 14.00
  • Bought 1 Dec 575 Call for 3.00

Break-Even on Dec Expiration:

Profits: btwn 529 and 571 make up to 21.00, max gain of 21.00 at $550

Losses: btwn 529 and 525 lose up to 4.00, btwn 571 and 575 lose up t0 4.00, max loss of 4 below 525 and above 575

Trade Rationale:  $490 to $500 seems like very healthy near term support, but I am not sure buying the stock here, possibly risking $20 to $25 to make what I think could be $20 to $25 over the next 6 weeks makes a whole heck of a lot of sense.  The Butterfly offers a wide range to the upside to make money, while defining my risk to less than 1% of the underlying stock price.