Tuesday, April 19, 2016

AAPL 2016 Update #83 (Stock Purchase)

On Monday AAPL dropped significantly closing at 107.48. Over the last two days this was a significant move down from the 112 area, nearly a 5pt move.

Being the short from the May W1 110 Calls means that the position is going to lose about 2.50pts in intrinsic value. Remember, the maximum profit occurs at 110, anything below that the position is going to loose money.

Look at the chart, this is a signifiant price reversal from the 112 level. 

To recover some of that loss, I am going to roll down the calls from the 110 level to the 108 level. This loss of 2pts will be offset by whatever credit I can get from selling this call spread.

Here are the details:

Trades

Part 1 - Roll down the call
+7c May W1 110 Calls @ 2.37
-7c  May W1 108 Calls @ 3.31
Net debit: -0.94/c

Part 2 - Purchase stock from the sale of the call spread
+6 shrs AAPL @ 108.228

The intrinsic loss of 2pts of the stock value is offset by 0.94 credit from the call spread. The net intrinsic loss is therefore about half that of straight stock. That credit instead of being held as cash is used to purchase more stock.

Where will the stock go? That is unknown and earning is also coming up so its not a surprise that this would sell off on any type of news.

I have two target areas that I will be watching to the downside and where I feel a reversal could occur. The stock price is not quite there yet.

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