If you were lucky to catch Apple's bullish upswing from the beginning of February, that meant a solid 20% gain for your portfolio. However, it doesn't take a genius to figure out that the latest toggling of Dow Jones in and out of 13,000 and sudden spike of volume in April $26 calls of Direxion Daily Financial Bear 3x (FAZ) means one thing - weakness! What is even more baffling is the market not having the strength to climb higher, despite decreasing jobless claims and unemployment rate. In any case, whether one wants to speculate with puts or buy them to hedge against a possible retracement of the following stocks held in a portfolio, it is overall a good idea to be prepared.
April 2012 Apple (AAPL) $545 PUTS look promising with a premium cost basis of $2,545. It currently has an implied volatility of 31.24% and had its yesterday's volume of 1,568 surpass its open interest of 975. Stay away from March $545 as Theta (time decay) will erode your premium $150 a day if Apple continues to trade sideways for a couple of days.
As Apple reached its new threshold of half a trillion dollar market cap, investors began asking whether the stock price was getting ahead of itself. Surely, the anticipation of iPad 3 would warrant such an increase, but before the stock makes its swing towards $1,000/share, it must retrace at some point. But even if it doesn't, high crude prices and overall weakness from major indices like NASDAQ might extinguish Apple's momentum.
Here is a stock that is irritating a lot of shorts, Chipotle (CMG). I received a lot of heat for stating that Chipotle could go higher in my last article. But if you are an investor holding the stock long term and are in accord with investors that company's P/E ratio is currently at abnormal levels, then protecting your profits with an April 2012 $400 Put can make sense. It has a cost basis of $1,810 per contract and has an implied volatility of 26.75%.
Chipotle had a great run up in the past six months, climbing from $300 to nearly $400. However, recent incremental $17 million insider selling from CEO and directors has investors worried whether the stock had reached its peak. Company did a phenomenal job improving its capex in rolling out its cost efficient "Type A" building designs and expects its revenue to increase by 21% in 2012 with same store sales growing almost 7%.
Lululemon Athletica (LULU) long term bulls should consider protective puts as well, since the stock reached a new 52 week high of $70.98 yesterday. Scaling into April $75.00 puts that trade with an implied volatility of 44.14% and a cost basis of $675 a contract could be a potential wise move for longs if the market retraces significantly.
$80 April puts would make even more sense if one believes that the recent split-adjusted target price of $77 from analysts at Stifel Nicolaus can rally the stock higher without a potential pullback. Yogawear purveyor's same store sales this year have been growing much faster than previously expected. Positive consumer sentiment to the company's new styles and color palates and limited amount of clearance shows signs of strength and optimism for the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.