Bullish On Apple? This Options Trade Could Net 43% In 16 Days

Apple’s stock (AAPL) is currently 8% below the high set in late November and bullish traders can set up a nice short-term AAPL options trade using a bull put spread.

If a trader believed the recent low of $106 will hold, they could use the $106 strike as the short put and the $104 strike as the long put.

Currently, this AAPL options trade offers a roughly 43% return on risk over the next 16 calendar days when using the February 6th expiry.

The maximum profit on the trade would be $60 per contract with a maximum risk of $140. The spread would achieve the maximum 43% profit if AAPL closes above $106 on February 6th in which case the entire spread would expire worthless allowing the premium seller to keep the $60 option premium.

The maximum loss would occur if Apple’s stock closes below $104 on February 6th which would see the premium seller lose $140 on the trade.

The breakeven point for the Bull Put Spread is $105.40 which is calculated as $106 less the $0.60 option premium per contract. Keep in mind that due to the bid-ask spread, you may not be able to get filled at these prices.

The breakeven price is 3.79% below the current stock price.

Looking at the chart of Apple’s stock below, you’ll notice that AAPL has been consolidating in a wedge pattern for the last month. For traders that believe the $106 support level will hold, this bull put spread offers an attractive risk / reward setup. Also note that the MACD is oversold and looking close to a bullish cross; it is also at the lowest levels seen in the last 6 months.

Counting against the stock is the upper border of the wedge formation and the 50 day moving average which comes in around the same level at $112.

AAPL has long been a market darling and bullish AAPL options traders have typically been rewarded in the past. Will that prove to be the case again over the next 2 weeks?

AAPL Stock Chart

aapl wedge formation bullish_apple stock chart january 2015

 

 

Thanks for reading.

 

Follow Gavin on Twitter: @OptiontradinIQ

No position in any of the mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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