Profiting from a bearish options trade on Apple if buyback enthusiasm wanes

Welcome to Extreme Investor Network, where we provide unique and valuable insights on investing strategies to help you maximize your portfolio’s potential. Today, we are diving into the recent surge in Apple’s stock following Tim Cook’s announcement of the largest stock buyback in history.

While this news initially boosted Apple’s stock price, it’s important to note that the tech giant’s revenue actually dropped by 4% year-over-year, with iPhone revenue down by 10%. Without significant innovation and revenue growth, the post-earnings rally may be short-lived, potentially leading to profit-taking in the near future.

So, how can you navigate this situation with options trading? One approach is to consider a post-earnings “gap fill” trade on AAPL. By analyzing the chart, there seems to be a gap between the $175 and $185 price levels from the earnings spike. Despite positive market sentiment, AAPL is showing signs of weakness with lower highs, lower lows, and a downward-curving Relative Strength Index, indicating a weakening upward trend.

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In light of this, we might want to consider a short-term bearish trade to fade the post-earnings spike. One strategy could be to set up a bear put spread by purchasing an in-the-money $185 put and simultaneously selling an out-of-the-money $180 put. This vertical spread can help capitalize on a potential downturn in AAPL’s stock price.

For example, if AAPL is trading at $183, you could consider the following trade setup:
– Buy $185 put, May 17th expiry
– Sell $180 put, May 17th expiry
– Cost: $250

If AAPL drops to $180 or below by the expiry date, this trade could provide a 100% return on your investment. However, it’s crucial to manage risk by closing the trade if you lose 50% of your initial investment ($125), as this can help offset losses and maintain a positive balance in the long run.

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At Extreme Investor Network, we emphasize the importance of optimizing gains and mitigating losses effectively in any trading strategy. By following sound risk management principles, you can enhance your portfolio’s performance and achieve your financial goals.

As always, remember that the information provided here is for informational purposes only and does not constitute financial advice. Before making any investment decisions, consult with a financial advisor to ensure that you are making choices that align with your individual circumstances and goals.

Stay tuned for more exclusive insights and tips on investing from Extreme Investor Network. Happy investing!

– Nishant Pant
Founder, Author: Mean Reversion Trading
Twitter: @TheMeanTrader

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DISCLOSURES: (Nishant has a 185-180 Bear Put spread on AAPL expiring on 5/17/24)

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