Medium term
Trade view / 17 May 2016 at 14:50 GMT

#SaxoStrats: Apple Call spread looks enticing

Global Head of Listed & OTC Derivatives Sales / Saxo Bank
Denmark
Instrument: AAPL:xnas
Price target:
Market price:
v
 
Background

After a sharp decline of Apple from $112.39 on April 14 to a low of $89.47 on May 12, the stock is now oversold and stochastics and RSI are giving us a buying signal.

Let's buy the June 16 (Expiry 31 days) 95/100 Call Spread to play a retracement to 100.93 (50% of retracement of 112,39/89,47),

Apple Daily Bar Chart
Source Saxo Bank

Management and risk description


Entry: Buy 10 Jun16 (Expiry June 17) 95/100 Call Spread at $1.36
=> Buy 10 Jun16 95 Call at $1.82
Sell 10 Jun16 100 Call at $0.46

Maximum profit limited
Maximum profit = Short Strike Price - Long Strike Price - Premium Paid
= 100 -95 -1.36
= 3.64

For 10 Call Spread you pay a premium of $1,360 ($1.36 X 100 shares X 10 lots) to realise a profit of $3,640 ($3.64 X 100 shares X 10 lots) if the market trades at $100 or above at expiry.

Return on investment if the market closes at $100 or above at expiry
= Profit/Premium X 100
= $3,640/$1,360 X 100
= 268%

Maximum loss limited
Maximum loss is limited to the premium paid
Maximum loss is $1.36 or $1,360 for 10 Call Spreads.

Breakeven point at expiry
Long Call + Premium paid
$95 + $1.36 = 96.36

Target: $100 or above.

Time horizon: 31 days.

Five-year chart
Apple Daily Bar Chart 5 years
 Source: Saxo Bank

— Edited by Martin O'Rourke

Non-independent investment research disclaimer applies. Read more
3y
SwimTrader SwimTrader
Indeed, that looks like a nice trade. Institutional money flows into AAPL are strongly positive, this morning. I just filled at $1.36! Thanks very much Patrice.
3y
Jbizz Jbizz
Thinking about closing this out today?

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