Apple Turnover

by riskreversal October 26, 2016 2:38 pm • Trade Ideas

Yesterday we previewed Apple’s (AAPL) fiscal 4Q earnings and offered some trade ideas for those with existing positioning or a directional inclination into the print. We now want to recap those ideas and discuss how they fared and how to manage going forward. The first was an overlay for existing shareholders that had the potential to add leverage if the stock was higher. Here was the trade:


vs 100 existing shares of AAPL ( $117.50) Buy the Nov 123/126 1×2 call spread for a .05 credit
  • Buy 1 Nov 123 call for 1.05
  • Sell 2 No 126 calls at .55 (1.10 total)

With AAPL lower by about 3% this trade is unlikely to come into play. Right now it can be closed at even money for the profit of the .05 credit that it initially cost. No harm no foul, which is what you want in these trades generally if you don’t get your desired move.

The second trade overlay was a hedge looking out to January. Here it was:


vs 100 existing shares of AAPL ($117.50) Sell the Jan 130 call vs Buying 110/90 put spread for $1
  • Sell 1 Jan 130 call at 1.00
  • Buy 1 Jan 110 put for 2.20
  • Sell 1 Jan 90 put at .20

With the stock at 114.90 this hedge is in great shape for those that want to continue protection into the first month of 2016. It’s worth about 1.75 vs the 1.00 initial cost. That’s only a fraction of the 3.25 that the stock is down, but this trade is of more value knowing that protection is there if there’s follow through on this initial down move, and was not intended to protect against a small down move. As far as trade management, at some point the 130 calls can be closed and the 90 puts could be rolled higher to the 95 or 100 line (on further weakness) to cover that cost of closing the calls. But all in all this is probably a hedge you want to keep on for a while because the 130 call isn’t really a threat at this point but the 110 call could come into play, at which point the put spread would really kick into high gear.

The last trade idea was one for stock alternative/replacement that looked to define risk and play for a move higher. Here was that trade:

Stock Alt/ Replacement

Buy the AAPL ($117.50) Dec 120/130/140 call butterfly for 1.75
  • Buy 1 Dec 120 call for 2.65
  • Sell 2 Dec 130 calls at .50 (1.00 total)
  • Buy 1 Dec 140 call for .10

With the stock down 3.30 this trade is is down about 0.85. That’s not bad considering its purpose which was to lessen the pain of any down move while having a chance to participate in a move higher. As far as trade management, the break-even of 121.75 isn’t that far away, so it can either be closed for the small loss, hung onto in case Apple can get above 120 by year end or rolled lower by $5 strike increments.