Apple Stock – Options Strategies For Income At The Bottom

Put Selling highly volatile stocks like Apple Stock is not for the faint of heart unless you don’t mind owning Apple Stock or enjoy the roulette wheel of blindly Put Selling the stock. Apple Stock trades on the NASDAQ under the symbol AAPL.

Much of the move higher today is on the news that market timer Tom DeMark told CNBC later yesterday that he see a sharp rebound for Apple Stock and believes within a couple of weeks it will rise to $600.00. Obviously DeMark believes Apple Stock is undervalued here and is ready to explode north to the surprise of many.

Put Selling Apple Stock

Since I am already Put Selling Apple stock which you can review here on the Members Section of my site, doing any more Put Selling does not interest me. For a lot of investors interested in Put Selling though I would caution that Tuesday when Apple Stock broke through $500, it could have been a bottom or it could have been the start of another leg lower in Apple Stock.

Apple Stock Technical Indicators – At The Bottom?

Let’s quickly look at yesterday’s technical indicators for when the stock broke through $500.00. The yellow line marks yesterday’s close. This is a daily chart, not minute or hourly so all the indicators prior to the yellow line are from prior days not from during January 15.

Apple Stock Jan 15 2013

The Technical Reads for Jan 15 2013 on Apple Stock

Technical Key Aspects

A. Momentum at 93.42 is negative but not as negative as the week prior. If you look at the Momentum graph on the readout you can see that yesterday’s momentum although negative was not nearly as low as the week prior. This is bullish for the stock. Often when bottoms are put in, the stock falls lower than expected but momentum is not as low as previous sell-offs in the stock. This tells investors that the move lower was a wash-out which could have been the case. Apple Stock has gone sideways for a month and a good push lower is often all it takes to shake out the remaining weak hands in the trade.

B. The Slow Stochastic is very oversold but is still pointing to the stock moving lower but it does appear to be reaching a sell-off scenario which again could have been on Jan 15.

C. MACD had actually turned positive on December 31 2012 and had climbed for a few days before falling. Yesterday MACD issued a sell signal on Apple Stock.

D. The Ultimate Oscillator was extremely oversold yesterday which would normally lead to a bounce such as is being seen today. There are no indications from the Ultimate Oscillator that today’s activity is anything more than a bounce from Jan 15 sell-off in the stock.

E. The Fast Stochastic is extremely oversold which again often leads to a bounce or a relief rally, but the signal presently is for the stock to move lower.

Technically then there are some signs that Jan 15 may have been a washout, but there are a lot more signals that a bounce is to be expected before selling resumes. It will take a couple more days for the technical timers to advise a clearer direction. Therefore there are no clear signals but more a question of judgement on the part of investors as to how much risk they are willing to assume.

Which Side Of The Fence

You don’t have to decide which side of the fence you are on if you don’t want to. You could simply do call and put credit spreads or call and put debit spreads depending on your outlook and then not worry about the stock at all.

Depending on your outlook for Apple Stock and if you are in Mr. DeMark’s camp or not, then a number of choices seem apparent.

In my opinion I prefer the put credit spreads. I like to be paid up front for risking my capital.

Simple Apple Stock Put Credit Spreads

If you think Mr DeMark is right and a bottom was put in yesterday in Apple Stock,  then you could look at the stock in two different ways. First would be a very simple put credit spread.

With Apple Stock trading around $508.00 an investor could consider selling a far out of the money put option, perhaps the Feb 16 options and then buy a further out put to create the spread. Selling the $460 put for example could be done for $8.00 and the $430 put could be bought for protection for $3.20. Personally I don’t think the risk is worth a 1% or so gain, but everyone has their own level of comfort.

Simple Apple Stock Call Credit Spreads

If on the other hand you think Mr DeMark is wrong and Apple Stock is headed lower you could consider a simple call credit spread. An investor could look at the Feb 16 call options and sell the $560 call and buy the $590 for protection. This is not something I would do, but it is available for the more adventurous.

Perhaps The Best Choices Are:

But maybe the best 2 option trades are these:

Put Credit Spread: Consider that perhaps at $460.00 Apple Stock would be worth owning. The dividend is $10.60 which at $460 is 2.3%. This company has a huge mountain of cash and unlike RIM they have more than just phones in their product lineup. The June 22 options expiry $460 put can be sold for $24.70 and the investor can then buy the Feb 16 $490 put for $17.15.

This means the investor earned $7.55 on the trade, and if the stock tumbles to $450.00 over the next month, the investor will earn an excellent profit on the downside and then can decide whether to roll the $460 from June out further or take assignment at $460.00.

Overall I like this put credit spread the best. It allows me to benefit from volatility in the stock and if the stock climbs I end up out of the money and the trade ends profitably. On the other hand if the stock collapses I make money going down and I can accept assigned at $460.00 and then reassess at that point to see what option strategy would be best to implement.

Call Debit Spread: If you think the stock is going higher you could consider buying a call option out of the money and further out in time and then sell a call option out of the money but within the closest month. For example an investor buys the June 22 options expiry $520 call for $35.45 and sells the Feb 16 $540 call for $11.00. If the stock moves to $540.00 the investor’s $520 calls will probably double and he can look to roll the Feb $640 higher up into March or April. By continuing to roll the naked calls higher he is earning more on his June $520 call and perhaps eventually rolling into June he will have reduced his cost on the purchase of the June $520 call and will convert to shares and turn the naked calls into covered calls to unload his shares or should he desire and Apple Stock is back up to $600.00 or so, he can choose to roll what would then be covered calls, higher.

The problem with the call credit spread is the speed with which Apple Stock can change. Apple Stock could easily reach $600 within a few weeks making rolling the naked calls difficult as it would have to be done more than once or twice to stay ahead of the rising stock and keep costs to buy to close and then repeat the sell to open, within an acceptable range.

Apple Stock Options Trading Strategies

While on paper these types of strategies look intriguing there are numerous pitfalls that must be overcome including extra commissions as there are two sides to the trade and watching a highly volatile stock like Apple Stock. Other trades that might work with Apple Stock are iron condors and butterflies but they are also more involved and again you are trading options against a highly volatile stock. Often the stock moves so fast it is difficult to adjust the trade to keep it profitable, especially when it is an iron condor or a butterfly, both of which I prefer doing on range bound or rising stocks rather than highly volatile stocks such as Apple Stock.

This is why I prefer my biweekly Put Selling strategy which I am doing now. My capital is at risk for a shorter period of time and I am selling puts at levels I would own the stock at.

But the put credit spread detailed out above makes a lot of sense, especially if you are bullish on Apple Stock. Remember these are just ideas to keep investors thinking and not recommendations or advice. I would not do any of these trade strategies since I am already doing what I consider to be the best Apple Stock options trading strategy which is the biweekly Put Selling.

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