Apple (AAPL) – Trade Idea Updates

by CC February 2, 2017 11:11 am • Trade Ideas

Yesterday, we gave our thoughts on Apple Q1 earnings (from the night before) and the move higher in the stock that followed. We’ve detailed a few Apple (AAPL) trades in the past month or so. With the stock higher, let’s check in on those trade ideas. The first was a simple stock alternative/replacement Dan talked about on Options Action, buying the Feb 120 calls and defining risk into earnings:


With the stock 128.50 that call is worth 8.50 and is basically like stock. As far as trade management, rolling it out a few months and to a higher strike makes sense. The May 130/145 call spread costs about 3.65, it books profits from the Feb call, defines risk and has the potential for 11.35 in gains by May expiration.

We also detailed a slightly more sophisticated stock alternative on the site on January 4th. The stock was 116 at the time:

Stock Alternative in lieu of 100 Shares of AAPL ($116) 

Buy the March 105 put – 120/130 call spread risk reversal for 75 cents
  • Sell to open 1 March 105 put at 1.05
  • Buy to open 1 March 120 call for 2.25
  • Sell to open 1 March 130 call at .45

With the stock 128.50 this trade is worth about 7.00 versus the .75 initially paid. As far as trade management, the 105 puts can be closed as they’re nearly worthless (and take off the margin requirement) . Then what to do with the call spread is up to how you want to position going forward. The stock is nearly to the short call, which means that the max value is just $10 if the stock continues higher. So there’s $3 in poetential left in the trade, but intrinsically the call spread is only worth 8.50 here, and the deltas will quiklcy approach 100, so the risk is similar to just owning stock, but with a sell order at 130. So for those looking for continued exposure to the upside, the same the May 130/145 call spread from above makes sense. It books profits from the call spread risk reversal, while positioning for a breakout.

The final trade idea was a defined risk short following the stock’s run higher into earnings:

AAPL ($121) Buy Feb 120 / 100 put spread for $2

-Buy to open 1 Feb 120 put for $2.35

-Sell to open 1 Feb 110 put at 35 cents

With the stock more than $7 higher after earnings, this trade is worthless. But as we said in the post:

This trade is binary and if AAPL were to go significantly higher on the results this trade would be essentially worthless. When it comes to trades like this we risk what we are willing to lose vs the potential reward if the stock declines.

For those looking to re-position a bearish position or a hedge, the March 130/120/110 put fly at around 2.70 is basically a bet the stock pulls back below 127.30 into March expiration with a max profit of 7.30 possible at $120.