Apple Stock Holding Its 200-Day Line? Options Trade Makes Quick 14% Return If It Does

Apple (AAPL) showed impressive strength in the last two days, rising back above the all-important 200-day moving average.


According to the IBD Stock Checkup, Apple stock is ranked No. 1 in its group and has a Composite Rating of 87, an EPS Rating of 95 and a Relative Strength Rating of 85.

Investors who think AAPL stock will stay above the 200-day moving average for the next week or two could look at a short-term bull put spread.

To execute a bull put spread an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.

Selling the April 1 put with a strike price of 150 and buying the 145 put would create a bull put spread.

This spread was trading Wednesday for around $0.60 a share. That means a trader selling this spread would receive $60 in option premium and would have a maximum risk of $440.

13.64% Return By April 1

That represents a 13.64% return on risk between now and April 1 if Apple stock remains above 150.

If Apple stock closes below 145 on the expiration date, the trade loses the full $440.

The break-even point for the bull put spread is 149.40, which is calculated as 150 less the $0.60 option premium per contract.

This bull put spread trade has a delta of 8, which means it is a similar exposure to owning eight shares of Apple, although this exposure will change over time as the stock price moves.

In terms of a stop loss, if the spread increased in price from $0.60 to $1.20, I would consider closing early for a loss, or if Apple stock closed below 153.

With earnings due in late April, this trade should have no earnings risk unless Apple gives early guidance.

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ


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