Yesterday we previewed Apple (AAPL) earnings and detailed a bullish/stock alternative trade. And last week we looked at a hedge for those already long the stock. With AAPL up (and outperforming the implied move) following better than expected earnings, let’s check in on those trade ideas. First, the bullish. Here was the trade, from yesterday:
Buy the Aug4th 155 – Sept 150 diagonal call calendar for 3.50
- Sell 1 Aug4th 155 call at .65
- Buy 1 Sept 150 call for 4.15
With the stock 157 this trade is worth about 6.00. It obviously made less than the stock move but also risked much less. The error on this trade, in hindsight, was selling the call above the implied move near-term, because the stock greatly outperformed that implied move, and the call sale capped what could have been a few more dollars in profits on the stock’s move. As far as the trade itself, it’s sort of maxed out here and those looking to can be taken off for the profit and look for other opportunities.
Now let’s look at the hedge:
Hedge Idea: vs 100 shares of AAPL ($150) Buy the Oct 160/140 collar for even money
vs 100 shares of AAPL ($150) Buy the Oct 160/140 collar for even money
- Sell 1 Oct 160 call at 2.95
- Buy 1 Oct 140 put for 2.95
This collar lost 3.75 versus the 7.00 gains in the stock. It is capping profits just above where the stock is trading and therefore the next move in the stock is important. If the stock looks like it will settle in a bit then you can be patient. But the more it hangs around this level the more it makes sense to look to roll this protection a bit higher, perhaps taking off the call sale entirely as any upside call sale at this point will be at low volatility. Therefore a roll to a simple put spread like the 150/140 could make sense.