New Trade – $AAPL Turnover?

by Dan January 28, 2015 9:55 am • Commentary

Earlier I gave a few anecdotal thoughts on AAPL’s Q1 results and Q2 guidance and some thoughts on the true believer mentality of retail investors.  There was nothing about the report that said SHORT, but the price action leading up to the results, and the potential for a failure at the prior highs could offer an interesting trade set up. This trade idea is not for everyone, and to be fair, we did offer a handful of ideas yesterday for existing longs and direction traders (here and here). But this trade is for those who think investors take profits at resistance, and the stock retraces some of the run to prior highs over the coming weeks as investors contemplate the potential of a “as good as it gets” set up:

AAPL ($117.75) Bought Feb 117/107 put spread for 2.50

-Buy to open 1 Feb 117 put for 3.05

-Sold to open 1 Feb 107 put at .55

Break-Even on Feb expiration:

Profits: between 114.50 and 107 make up to 7.50, max gain of 7.50 below 107

Losses: between 114.50 and 117  lose up to 2.50 with max loss of 2.50 above 117

Rationale: I want near the money participation for a quick reversal from recent highs, but also want to sell a downside put to help offset some decay.  I will stop this trade at 50% of the original premium risked.  If I am wrong and don’t get the reversal I will not wait around for the spread to go worthless.