Technically speaking, Apple, Inc. has been quite a loser recently. Between earnings and analysts’ reports, Apple has clearly grown out of favor. With a 52 week high of 132.97, its current trading price of $94.19 is trading 29.20% from its highs. In comparison, the E-Mini S&P 500 June, 2016 Contract, which reached its high on May 21st, 2015, has fallen a mere 2.79% as of Wednesday’s close. While Stocks go in and out of favor, this is quite a substantial move for a company which is innovative, has huge cash reserves and trades at a Price Earnings Ratio of about 10.5. I know that Wall Street is big on growth, but this type of lambasting is typical of any tremendously out of favor instrument.
I wouldn’t attempt to discuss all of the details that an analyst would provide when evaluating a Stock. I will say that as someone who watches markets and volatility that Apple seems to be oversold. This trading environment may provide the type of opportunity that contrarians look for. The Chart below, provided by TD Ameritrade, shows the pricing of Apple Stock for the last three years. It includes Historical and Implied Volatility and the Stock’s Relative Strength Index which is a measure of oversold instruments. In addition, it shows the 200 Day Moving Average which Apple’s Stock Price is currently trading.
For those that are convinced that this is the time to Buy Apple Stock and I don’t make recommendations, I present ideas, purchasing the Stock is simple. For those that would prefer to establish a position at lower levels, using Options Contracts, this may provide an excellent opportunity. The Table below uses the July Apple Calls and Puts to demonstrate certain Options Trading possibilities; click the link to learn more about Options Trading in a PDF.
Here are a couple of Options Trading Strategies to consider: 1) if you are very comfortable Buying Apple Stock at or before July 15th at $85 per share, you could Sell the July 85 Puts, more than 9% from the current trading price of Apple and collect $110 for the commitment to Purchase 100 Shares. While the price of the Put is not trading at a particularly high Implied Volatility, we could combine the Strategy with the purchase of either the 105 or 110 Calls, depending on whether you want to generate cash or pay for the spread. This type of trade is known as a Fence. The Fence enables you to both Buy and Sell Implied Volatility thereby avoiding either purchasing it or selling it at one particular level. Keep in mind that the Vega of the position depends on where the underlying Stock is Trading.
In a Fence and in this case a Long Fence, you Purchase the out-of-the money Call and Sell the out-of-the money Put. It is a position with essentially unlimited risk because you are exposing yourself to purchasing the stock which theoretically can go to nothing. On the other hand, you are Purchasing the out-of-the money Call which provides unlimited upside potential. Choose the Strikes and Strategy that makes you comfortable. As I type this article on my I-Mac, while listening to music on the playlist on my I-Pad and talking on my I-Phone, I wonder if this sell-off is a bit overdone. Evaluating Options Trading Strategies is creative and analytical. Take a look at optionsstrategynetwork.com to learn more.
Options trading involves significant risk and is not suitable for every investor. The information is obtained from sources believed to be reliable, but is in no way guaranteed. Past results are not indicative of future results.