A couple weeks ago on Sept 2nd (Apple (AAPL) – Release Me) we detailed a bearish leaning, defined risk strategy in Apple heading into their Sept 7th iPhone 7 launch event when the stock was $107.50 in an effort to finance longer dated puts. To refresh, here was the trade and the rationale:
*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
Rationale: Max profit at 105 on Sept expiration with the ability to then spread the November puts and further reduce premium risk. Ideally, the stock sells off towards 105, Sept 105 put expires worthless and then you’ve financed owning Nov 105 puts. The risk to the trade is that the stock goes higher from here into September expiration in which case the sale of the September puts will not be enough to make up for losses in the November puts. There’s also risk of the stock collapsing below support before September expiration, but this trade will be profitable even if that happens as long as the stock isn’t too far below the 105 strike in the next 2 weeks.
For those already long the stock this probably isn’t the ideal hedge because of the risk of being long deltas below 105 if that happens in the next few weeks. Before the event we’ll follow up with some hedges and other overlays for those already long the stock.
Following the event, the stock sold off, to the strike of the original trade (near $105), we adjusted the position on Sept 8th (Apple (AAPL) Turnover?), as we felt we got the event and the trade right and wanted to maximize the profit potential of the position. To refresh, here was the trade and the rationale:
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.
Well the reviews are in, and for the most part the consensus is obvious, and expected, the iPhone 7 & 7+ are the best iPhones Apple has ever made. What’s less obvious is that for those who upgraded or bought the iPhone 6 or 6s in the last two year needs to buy the 7. I’ll leave that for the fanboys, whoops I mean the tech press (good rundown of reviews here from BGR.com). My thoughts on the event from last week, a tad critical of the pretense of management (MorningWord 9/9/16: Apple Jacks and the fact that the tech and media press eat it all up).
I can write and write about Apple. I do enjoy it, my views are sometimes contrarian. And while I can be right and wrong, I am now, in the last couple weeks severely off-sides with current sentiment and my positioning.
AAPL is up nearly 9% from Monday morning’s lows:
More importantly, the stock bounced exactly from where it was supposed to, very near the July earnings gap, and just above its 200 day moving average (yellow line below) and just a buck away from its 2016 high, which a break above would confirm the end of the long national nightmare of AAPL’s stock downtrend from its 2015 all time highs:
So wrong short term is still wrong, and it makes sense to cut the losses on this position.
Action: AAPL ($111.35) Sell to Close Nov 105 / 95 put spread at $1.75 for an 80 cent loss