On Friday June 2nd, prior to Apple’s (AAPL) World Wide Developer’s Conference (WWDC, Monday, June 5th in San Jose) we detailed a protective collar long holders of the stock (Apple – Turnover Protection). I laid it out on CNBC’s Options Action, watch here:
Here was the protective overlay and rationale:
The stock has declined nearly 8% since and is now just a few dollars above the long call strike with almost four months to September expiration. With the stock at $144, the Sept 170 calls that were sold at 1.75 can now be bought to close for 75 cents, for $1 profit, and the Sept 140 puts that were bought for $1.75 can be sold at $5.25 for a 3.50 profit.
So let’s do some math, the stock is down $11 since June 2nd, and the Sept 140/170 collar has gained $4.50 mitigating more than a third of the stock’s losses. So we have decisions to make.
1. If you thought the stock was about to bounce then you would close the collar having lowered your overall cost basis by 4.50
2. if you thought the stock was going to continue to decline then you might
A. leave the collar on as it is doing what it is supposed to do (but possibly cover the short call if worried about a bounce)
B. turn the put into a put spread, locking in a tiny bit of the hedge profits
As we detailed in the post from June 2nd, $140 is important near-term technical support, which is one reason it makes sense to consider adjustments, and a break below puts $130, the late Jan earnings gap in play, another 10% from here :
Action: Sell to open the AAPL (144) Sept 120 put at .95
New position AAPL (144) Long the Sept 175 call 140/120 put spread collar for a .95 credit
Further management from here could consist of covering the Sept 175 call but there’s no hurry to do that until the stock shows a sign of stabilizing or bouncing as vol would then come in on that strike.