Sunday, February 07, 2016

AAPL 2016 Update #71

AAPL dropped on Friday along with the market. Other technology stocks have been hit harder, in particular GOOGL, FB, TSLA, NFLX and AMZN after their earnings. AAPL having already been down since December is looking quite tame.

Nonetheless, AAPL dropped to around $94 on Friday. This created an opportunity on the current hedge in play. 


Courtesy OptionsAnalysis
The short call is trading at roughly -50 Delta coming in from around -64 Delta. The stock price and option strike are now roughly equal. The short calls are profitable and partially offset the loss in the stock.

The time to expiration is is still 21 days out, so while theta is rapidly decaying it still has some time to go until maximum profit is realized.

As the market appears to still be weak, I am inclined to adjust the deltas back to be slightly more hedged, around to a -58 to -60 delta is possible due to the single dollar strikes available. There is three weeks left in this option series for price to move and be adjusted.

A possible adjustment at this point is to just roll down the hedge from -50 to around -60 (10 more deltas) and collect the difference as a profit. The roll down can be down for a credit.

Another possibility is to roll down the hedge and use the credit to purchase a put outright. This caps the risk in the position to the put strike. I won't be able to use the credit to reduce the position cost basis (purchase more stock) but instead put that into buying a floor.

These are the two choices at this point.

The price has dropped significantly (the stock is down some 28% from the high), and in fact could rebound higher or continue to base over the next three weeks.

Remember, if the price bounces and the short call goes deeper into the money, I will need to roll the short call up and out in time again extending duration of the trade.

Trades
Part 1 - Roll down the call
+8c Feb 26' 94.5 Call @ 2.43
-8c Feb 26' 93 Call @ 3.22
Net credit: Approx -0.79/c

Credit value: 0.79 X 8 = +632

Part 2 - Purchase stock.

Dividend value: 0.52 * 850 shrs = +442

Total cash to work with: +1074

I will be purchasing stock after the dividend is released in a few days as this account is being transferred to a new broker.

No comments :