Medium term
Trade view / 17 January 2017 at 15:10 GMT

A put spread strategy for overbought AAPL — #SaxoStrats

Global Head of Listed & OTC Derivatives Sales / Saxo Bank
Instrument: AAPL:xnas
Price target: 114 or below
Market price: $1.79

The stochastic, RSI, and MACD indicators are giving us bearish signals on Apple.

Let's buy the Feb17 (expiry February 10) 119/114 Put Spread to play a retracement to 114.09 (50% of retracement of the last bullish wave 108.25/119.93).

Apple Daily Bar Chart

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Source: Saxo Bank 

Management and risk description

Entry: Buy Feb17 (expiry 10th February) 119/114 Put Spread at $1.79
=> Buy Feb17 119 Put at $3.02
Sell Feb17 114 Put at $1.23

Maximum profit at expiry is limited

Maximum profit at expiry achieved when underlying price =< Short Strike Price
At expiry maximum profit = Long Strike Price minus Short Strike Price minus Premium Paid
= $119 - $114 - $1.79
= $3.21

Return on Investment if the market closes at $114 or below at expiry

=Profit/Premium X 100
=$3.21/$1.79 X 100
=179.33 %

Maximum Loss

Maximum loss is limited to premium paid
Maximum loss is $1.79 or $179 per Put Spread.

Break-even Point at expiry

= Long Strike - Premium Paid
= $119 - $1.79
= $117.21

Target: $114 or below.

Time horizon: 24 days.

— Edited by Michael McKenna

For more on contract options click here.

Non-independent investment research disclaimer applies. Read more
vsquare007 vsquare007
Do you have any updates on this trade closing as AAPL seems very bullish and time decay is not helping debit spread either ? Would you rather close and minimize loss or wait further few days.
Patrice Henault Patrice Henault
Hi vsquare007, I hold my position, Stocastics are overbought and are giving us a selling signal and so is RSI. MACD is crossing seller as well and the bar chart are building a risng wedge that we are about to break on the downside.
mustafasafaoz mustafasafaoz
Hi Patrice, what is happening to these markets? Apple is still so strong. Do you have any idea about that? Still believe to keep this position?
Patrice Henault Patrice Henault
Hi mustafasafaoz,
Stochastics and RSI clearly seller. MACD is about to give us a selling signal and we open with a bearish gap.
I definitely keep my position.
vsquare007 vsquare007
Patrice do you to close the sell short side leg ($114) for increase in stock price after earning news. Also, would you let run the buy long side leg ($119) or salvage the left over amount. Don't think AAAPL is coming down below $119 or suggest wait and be more patient.
ssivis ssivis
Hello Patrice! Shall we Roll this position to the 24th weeklys? Or just close it worthless? Thx.
Patrice Henault Patrice Henault
this one will have to be close worthless
vsquare007 vsquare007
Patrice would you still say it is overbought with $132 stock price from earnings news. Also, you could have rolled up the sell side up ($114 - > $125 -> 130) and minimized losses rather than taking full 100% loss on the put debit spread. Bottom line don't trade on earnings news when stock can move wildly in your or against your favor.


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