Apple (AAPL) Turnover?

by CC September 8, 2016 2:36 pm • Trade Ideas

Last week we looked at the set-up in Apple (AAPL) stock into its iPhone7 event (yesterday). At the time we thought it was unlikely that we already didn’t know most of what Apple was set to release as the rumor mill has been pretty spot on on these events for some time. Therefore we assumed the event would be greeted with either disappointment or as a non-event and the stock was likely to pull back some following the event.  Dan discussed this on CNBC’s Options Action on Friday:

That’s pretty much how it played out, but AAPL threw some fuel on the fire this morning when they announced they won’t be releasing intial iPhone unit sales numbers this year for the first time in a long while:

Back in the days of the Reality Distortion Field Apple may have been able to spin that news, and investors would have given it a pass. But not anymore. Today the stock is down about 2.5%.

Here was our original trade & rationale from Friday:

The upcoming event with much of the news known, the relatively low level of options prices in Nov and the technical set up lead us to be inclined to play for a continued consolidation near term, with the slightest bit of disappointment with initial sales and reviews and weak forward guidance causing the stock to fill in the July earnings gap.

So What’s the Trade?

*AAPL ($107.50) Buy AAPL Sept / Nov 105 put calendar for $2.75
  • sell Sept 105 put at 75 cents
  • buy Nov 105 put for $3.50

With the stock now $105.50, this trade is worth about $3.30 vs the initial $2.75 at risk. That’s nice and the trade is working well but it does have some risk if we get more headlines in the near term about initial sales. As long as we’re short the Sept 105 put we’re at risk of becoming long deltas on a move below $105. So we’re going to roll the short leg of the trade and keep the bearish profile below 105:

Action: vs AAPL ($105.50)

  • Bought to close the AAPL Sept 105 put for .95
  • Sold to open the AAPL Nov 95 put at 1.15

This roll resulted in a credit of 20 cents, reducing the original premium at risk, but now creating a vertical put spread.

New position: Long the AAPL ($105.50) Nov 105/95 put spread for 2.55 (currently worth 3.10)

Rationale – This roll keeps our bearish intention in the stock and slightly reduces our overall premium risk.