Monday, August 24, 2015

AAPL Update #26 (Stock Purchase)

Aug 24

Analysis

The market dropped 800pts out of the gate. AAPL traded down to as low as 92.00 (so briefly). Option spreads were wide and all over the place.

Futures dropped limit down and the YEN currently jumped 4% (2400 pip!!) in one session. VIX went to 58! I think we are near or at capitulation selling given this fear level. Dow futures (YM) had a range of 1152 and SPX futures (ES) had a range of 140!!

The option prices were extremely unstable this morning bouncing around briefly widening to as much as 4 (bid) X 8 (ask).  AAPL stock also has a short sale restriction from the broker.

My plan is to close out the hedges and purchase more stock again on these integer moves downward. AAPL technical moved nearly 13.76 this morning. I am however, not going to re-hedge at this level as just yet as this is the point where I see buyers now coming after real fear selling (and possibly margin accounts liquidating!). A bounce of some kind is due!

A point of context this is all based on the China slowdown and market fears spilling over in the US equity markets.

The market in fear mode now and until all the sellers are washed out and volatility calms down, there is no technical or fundamental basis for any of the trades now.

I am going to wait until EOD and see where the market returns to, AAPL already had bounced back to 104+, so a little covering is probably in order. Also volatility is very high and option spreads are wide. This VIX has already started to drop to the bid-ask should begin to narrow. Going to keep the hedges on a short expiration, but going to widen them out.

AAPL traded as high as 108 during the morning but has fallen back to around 103-104. I have placed a wide hedge around the position, but with a short expiration. I could have hedged this a little tighter on the upside for more credit, but in case there is a large reversal this week, I want some upward room for the stock. But we may also still get down into the 92 area and test that also.

Trades

Trade 1 - Close Hedges

+6c Aug 28' 112 Call @ 0.51 (sold originally for 0.90 -- barely 0.40 move)
-6c Aug 28' 98 Put @ 3.00 (sold for more than 3X its Friday value, tried for more but the market was too crazy volatile, saw bids into the 6 range! for just a few seconds when the price hit 92 for just a few seconds)
Net profit: 1500

Trade 2 - Purchase Stock
+14shrs AAPL @ 101.38 (tried for lower, but again too volatile)

Total shares are now 713. This gives me another contract level to sell and hedge.

Trade 3 - New hedges

Because I have accumulated 113 shares since the start of this series, I must now hedge with 7 contracts instead of 6.

-7c Aug 28' 110 Call @ 0.55
+7c Aug 28' 90 Put @ 0.55

The updated position value with greeks and breakeven is shown below:

While the position is still down money, there are some things to note:

1) Break even at expiration is now just 109.87, less than 5pts away. This is 20pts lower than from the Feb 26 starting price.

2) The position delta is +521. 713 shares of AAPL are hedged, which means the current hedge is carrying a negative delta of about 200.  This is important as 2-3 dollar intraday move has value of $400-$600 and can be closed out to purchase 4-5 shares at a time. Because the number of hedges is increasing (7 contracts), smaller stock movements can capture value more quickly and accumulate shares.


-End

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