Stock Investment in Apple Stock Through Put Selling And Naked Calls

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Apple Stock is being hammered today as the latest quarterly earnings did not meet analysts estimated projections. But as a Stock Investment Apple Stock should have a long way to go.When getting involved in any Stock Investment it is always worthwhile to consider the stock and the future. Apple Stock right now is “the” Stock Investment choice for millions of investors, both large and small. A plunge like today will be seen by many as a great chance to get into Apple Stock for what they perceive as the next leg up.

Overall though Apple Stock is being hurt by the mood of investors, fear of a continuing global economic slowdown which could hurt Apple’s Earnings and the growing crowded handheld market place as consumers are holding back waiting for the iPhone5 to arrive and have half a dozen other great phones to consider including Samsungs which are being shipping a lot more than Apple products.

As well the overall economy may indeed be slowing as consumers in the United States, Canada and Europe have become tapped out as they say. Consumers have been borrowing at a record pace thanks to world wide low interest rates. But the debt load is such that consumers have to slow their spending. This slowdown in spending could continue for some time. First governments world wide got into a mess over debt obligations and now a lot of consumers have joined their sad party.

I have no way of knowing whether Apple Stock will shortly enter a new leg higher, stay stuck in a trading range or fall lower from here.

So when it comes to a Stock Investment in Apple Stock I prefer Put Selling out of the money puts and selling out of the money Naked Calls and stay clear of owning Apple Stock. Today’s pullback is a great chance to review some Stock Investment strategies for Apple Stock which can be added to a portfolio. Remember though that Apple Stock is a stock for trading. It is not in my opinion a Stock Investment for long-term stock investors.

Stock Investment in Apple Stock Through Today’s Weakness

I am going to go through the same 4 Steps I use on any Stock Investment before deciding what put option strikes I should be Put Selling against.

Step 1: Support And Resistance In Apple Stock

The first thing we need to look at for this Stock Investment is Support and Resistance in Apple Stock. The one year Apple Stock chart is below and I have marked the various events which I want to look at in more detail, on the chart. The volume indicator is included in the chart and I have marked with a blue line the average daily volumes so I can pick out areas in the stock where support and resistance can be found.

A. This is back in early August 2011 when the stock was between $355 to $390.

B. This is September 2011 when the stock was between $380 to $406.

C. This is early October 2011 when Apple Stock was between $355 to $380.

D. This is late October 2011 when Apple Stock was between $405 to $425.

For the period then from A through D support could be found around the average of these prices which would be around $375 to $380. Definitely then long-term support could be found just below $400.00.

E. This is the first jump up in January 2012 from $425 to $450. At this point support was still back around $380.

F. This Is February 2012 when Apple Stock broke $500 and move to $525.

G. This is March 2012 when Apple Stock broke $600.

H. This is mid April 2012 when Apple Stock ranged from $610 to $556.

Since H the low was May 18 2012 when Apple Stock fell to $522.18. Note how since H, selling in Apple Stock has remained muted. There is no panic here.

I have marked one other area:

I. This is the present position of Apple Stock which shows that despite the earnings report last night, volumes remain average. This shows little concern among investors for Apple Stock. Most investors have a good outlook for Apple Stock and remain confident the stock is going to move higher.

Looking at the support areas I have outlined I believe there is a lot of mid-term support in the stock at the $520.00 level and certainly somewhere between $500.00 and $520.00, but it will depend on earnings for the next quarter. Between now and the next quarterly earnings, if Apple Stock stays between $520 and $600 and earnings are soft again next quarter, Apple Stock will probably retest the $500.00 level for support. Right now, $625 definitely offers a lot of resistance, however the advent of iPhone 5 may push the stock back up to resistance simply by the nature of investors’ enthusiasm. Longer-term there is not much support until down around $425.00.

Stock Investment in Apple Stock

One Year Apple Stock Chart showing Support and Resistance Levels.

Step 2: Stock Technical Analysis Of Apple Stock

Now that I know Support and Resistance levels in Apple Stock I can move to Stock Technical Analysis before commencing selecting my Put Selling strikes. I believe today’s selling in Apple Stock is an opportunity for Put Selling and earning some income from Apple Stock.

The Stock Technical Analysis tools I will use for Apple Stock will be Bollinger Bands, MACD Histogram, Ultimate Oscillator, the Slow Stochastic and Fast Stochastic.

Below is the 3 month Apple Stock chart with readings I did at 3:00 PM today.

Stock Technical Analysis Readings and Interpretations

Apple Stock Bollinger Band

The selling of this Stock Investment today has pushed Apple Stock below the lower Bollinger Band. While I do not have charts posted, if you look at previous charts and days when announcements have pushed Apple Stock outside the lower Bollinger Band the stock quickly recovered. I would expect therefore this Put Selling opportunity at this lower level in Apple Stock to not last very long.

Apple Stock Ultimate Oscillator

The Ultimate Oscillator is neither oversold or overbought. The fact that it is not oversold shows that today’s selling on the earnings announcement is subdued. There is no panic here. Therefore any run back up in the price could be slow, but any further falling could also be slow. Most investors today are looking at this earnings disappointment as an opportunity to buy more shares.

Apple Stock MACD Histogram

MACD Histogram is positive although today’s plunge has pushed MACD lower. But again, MACD Histogram staying on the positive side shows the strength in Apple Stock and investors’ conviction that Apple Stock is still going to move a lot higher from here.

Apple Stock Slow Stochastic

The Slow Stochastic is almost neutral but the reading shows there is some oversold properties entering Apple Stock. This could hold Apple Stock from falling further.

Apple Stock Fast Stochastic

The Fast Stochastic is oversold and bearish. It has been bearish for a few trading sessions so the bearish sentiment is not as important as the oversold reading. The stock could bounce which is what investors doing this Stock Investment trade might want to see happen.

Stock Technical Analysis Tools On Apple Stock

Stock Technical Analysis on Apple Stock 3 Month Chart

Step 3: Apple Stock Put Selling Investor or..

The third step is what type of Stock Investment I am looking at with this trade. For me I am not a long-term stock holder for Apple Stock. I am Put Selling against this stock or for those who want to do the entire trade they could be interested in Trading Options, but overall I see no reason to want to hold Apple Stock.

Step 4: Apple Stock Put Selling Strategy

The final step is to pick the strategies I would use for Put Selling against Apple Stock.

There are a number of Put Selling strategies which investors could consider. The trade I will discuss here can be adjusted or changed to suit any investors designs or strategy. This is simply my strategy.

With Apple Stock support at around $520 and the stock trading at $574, I want to set up a position that can earn profit but at the same time protect against assignment, or if I am assigned shares, know what rescue trade I could apply.

To start, if I split the difference between $520 and $574 the amount is $547. I will move down $5.00 and sell the September $540.00 Put Strike. By Put Selling into September it will leave the stock time recover from the present selling and enough time for the put options to begin to lose value.

I would then use Margin to do some Put Selling either at the $520 support level, or perhaps Put Selling below support.

I would wait a day to see if there is any more selling left for the next day or two before Put Selling the Margin strikes. None of these puts would be held until options expiry. This is a trade only and I am interested in earning income from them. When using Margin for Trading Options I am only using it to boost my options return. I will close the puts I sell with Margin as soon as the stock climbs back and the Puts I sold with Margin fall in value.

Put Selling Prime strikes for Apple Stock

Put Selling Apple Stock to not be assigned shares takes a bit more work.

Put Selling Both Strikes

By Put Selling both the $540 and the $520 if done today, I would earn a total of $14.95 on this Stock Investment based on the above put strikes.

On a stock like Apple Stock which can have large daily swings, Stock Analytics are not tremendously helpful for far out of the money options. If we look at the analytics for the put strikes I chose for Put Selling I can see that the Delta for the $540 put should increase by about .25 cents for every $1.00 Apple Stock falls. The gamma is very low at 0.005. While neither can be used to actually give the probability of assignment, many people do still use Delta as a yardstick to try to determine probability. While not at all accurate, I have never found Analytics to be particularly helpful when volatility continues to climb.

Analytics for Put Selling on Apple Stock Puts

Analytics for Put Selling on Apple Stock Puts

 

Selling Naked Calls To Juice The Return

When Trading Options for this Put Selling strategy I would also be considering selling naked calls to “juice” my earnings a bit more. In early April Apple Stock was trading above $640.00. I want to stay quite high with my naked puts.

A lot of investors would look at the Weekly or the August options. I prefer the September naked calls as I want to sell higher out of the money naked calls such as the September Apple Stock $610 naked calls which could be sold for $8.10 or even the $620 for $5.95. I want bigger premiums as I do not plan on holding them but they are for trading only.

Apple Stock Call Options

I would also be considering selling Naked calls on Apple Stock

Selling Naked Calls Needs A Rising Apple Stock

I would leg into each position as Apple Stock dictates. When the stock is falling like today, I would sell the naked puts. When Apple Stock rebounds I would be selling the naked calls.

Stock Investment Rescue Strategy In Place

It pays to have a plan in place to rescue a trade if it turns bad. For this Stock Investment in Apple Stock I am prepared with the simple strategy of selling covered calls.

If the naked puts are assigned I should be able to sell in the money covered calls in order to be exercised out of the stock. If assigned Apple Stock at $540.00, selling in the money covered calls will be easy. Through Put Selling the $540 and $520 put strikes I will earn $14.95. My cost basis if assigned on both the $540 and $520 naked puts would be $530.00.  If I can sell the $610 naked call for $8.10, my return would be $23.90. This reduces my break even in Apple Stock to $506.10. If Apple Stock falls, my break even in the stock is low enough that I should have plenty of covered call strikes available for selling and still allowing for a profitable trade.

This Apple Stock Investment Is For Trading Options

This entire Stock Investment is for trading options only. I have no intention of holding all these positions into September options expiry. The plan is to play each side of Apple Stock. When Apple Stock is falling the plan is to sbe Put Selling the margin side of the naked puts and buy to close the naked calls. When Apple Stock is rising, I am selling the naked calls and buying to close the naked puts.

I hope Apple stock will stay within a trading range going into the next quarter earnings and allow me to engage in Put Selling and selling naked calls to add profit to my overall portfolio. This strategy can be adjusted or changed by any investor to suit their outlook. Those who are more risk oriented can be Put Selling at higher put strikes. They could also spread their put options among a variety of strikes and time periods. Those who like credit spreads can be setting up credit spreads through puts and calls. For myself I prefer the naked option approach as I believe Apple Stock is strong enough and has enough investors holding shares to keep volatility high and make selling options highly profitable while limiting any capital losses.

  • Yes, the time to sell the naked calls side of this trade is when the stock has swung up and the fast stochastic is indicating overbought. That would be my choice and yes I agree, you want to see far enough of the money to insure the best chance of not being assigned Apple Stock Shares