Trade Update – $AAPL: Closing Feb Put Spread for a Loss

by Dan February 4, 2015 11:15 am • Commentary

In the morning following AAPL’s Q1 results we looked to fade the move to recent highs as we thought the $120 area would provide resistance, especially in a broader market that seemed shaky at the time. Since that point the stock has indeed struggled to get above $120, but it ain’t exactly selling off from this area. Since the end of last week and the change of the month, the sentiment in the market  has certainly shifted , the potential to break out above that $120 level seems much more likely now.  I was wrong, going to cut my losses before the stock does breakout and establishes a new range above $120.  The stock is clearly a safe haven sort of name at the moment, and could see a rally into expected updates on cash return plan and Watch both to come in April. So why fight it now?

Action: Sell to Close AAPL ($120) Feb 117 / 107 put spread at 1.20 for a $1 loss



Earlier I gave a few 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.