Monday, September 14, 2015

AAPL Update #30

Sep 15/16

Analysis

AAPL gapped up slightly today into an daily supply zone around 116.50.  The stock sold off by end of the day and closed above 115.

The stock has been moving in a bullish trend since the lows of Aug 24, making a series higher highs and higher lows.

The 115 short call with 4 days to expiration is trading just slightly ITM. Being proactive with this position and wanting to allow for further appreciation of the stock, I am going to place an order to roll out the short call out two weeks in time.

I can roll the position for a credit and move it up. However, here are some choices. I can roll the call up and out for even money and gain a few strikes, or I can roll the call up fewer strikes, and have enough to pay for a put in the event that AAPL sells off in the next few weeks. I am bullish on the position, but also realistic that potentially we can sell off.

Because of the bullish nature of the stock the last few weeks, I am in a situation where the upside call is acting as a hedge against further profits. As stocks can run up, each time the price gets near the short strike and close to expiration, I am going to proactively roll until the bullish advance stops, or the stock makes downward move allowing me to close the call position.

Alternatively, I can choose to let the stock get called away and start a new position.

What I am going to try is roll the call up 1 strike which is where the stock is trading this week at 116. From the credit received, I can then purchase a higher strike put and greatly reduce my position risk. Within that two period, the stock can move higher, in which case I will roll out again, or go lower in which case the hedge has a chance of gain value to purchase more stock.

Trades

Part 1 - Roll out the calls

+7c Sep 18' 115 Call @ 1.95
-7c Oct 2' 116 Call @ 2.85
Net Credit: 0.90

Part 2 - Purchase new puts

+7 Oct 2' 108 Put @ 0.85

The risk curve for this position looks as follows:

The position is currently up +3700 in profit, 16 days to expiration, delta +242

Maximum profit +5000, Maximum risk about -750.




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