A short trade idea in Apple

Regardless of your bias with $AAPL as a company, when reviewing the chart it is hard to make a case for getting Bullish (I posted one today though, the 3-box reversal PnF is Bullish). With that in mind, and since it is back to test the $420 level so soon, I have elected to do some work on building a short position.

Here are the trade specifics:

  • short stock at $423.65
  • short the May 400 Put at 12.25
  • long the April 12 weekly 400 Put at .80
  • long the April 12 weekly 425 Call at 5.55
  • The Options pieces were done for a net credit of 5.90

Here are a few scenarios to show how this could play out:

Scenario #1

The stock falls to $400 by next Friday. The short May Put would increase in value, the short stock position would look great, and I would the sell the weekly 400 Put for what I can. The long weekly 425 Call goes poof so I would need to buy new Call premium again to protect the short stock position and would do so at a lower strike price than $425.

Scenario #2

The stock pops to $435 by next Friday. The short May Put would decrease in value, the short stock position would be losing here, but I would sell the long weekly 425 Call for a nice gain. The long weekly 400 Put goes poof. I would need to buy new Call premium again to protect the short stock position.

Scenario #3

The stock price stays neutral, stays in this range by next Friday. The short May Put would hold its value, the long weekly Put would go poof, and I would sell the long weekly 425 Call for whatever I can. I would need to buy new Call premium again to protect the short stock position.

Scenario #4

The stock price implodes to $380 by next Friday. Sweet. The short May Put would increase in value (and would ITM), the short stock position would look great, and I would sell the long weekly 400 Put for a nice gain. I would need to buy new Call premium again to protect the short stock position as the weekly $425 Call would go poof. This would be at a much lower strike though.

4 thoughts on “A short trade idea in Apple

  1. Pingback: Best Of The StockTwits Network 4-7-13 | The bclund BlogThe bclund Blog

  2. You are correct. I have updated the Scenarios to reflect the bullet point trade specifics. Thanks for reading.

  3. trade update: let the short stock position hit a stop for -$9.00 on 4/10/2013. The Option pieces offset this nicely, have value of $14.8 as of this update. The $5.9 credit adds to the cushion as well.

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