Option Trade Ideas Based On Historical Strength In Apple

Aug. 7.12 | About: Apple Inc. (AAPL)

By: Giorgio Ferrero, Oxen Group Contributor

Daily Data: Apple Inc. (AAPL)

Apple just missed earnings! However, even with an earnings miss, Apple is still set to report annual EPS numbers of 43.99 (assuming AAPL reports in line expectations next quarter). Based on a 43.99 annual EPS number AAPL has a 13.99 P/E ratio. This forward P/E is less than next years expected EPS growth rate of 18.55% and the 5year growth rate of 21.05%. So…despite the recent miss in earnings, AAPL is still trading at least 24.58% below expectations. I'm still a big fan of Apple stock as are all other investors, and its obvious that it is a matter of time before this stock continues towards $700. This week we saw Apple close its post earnings gap down at $604 and then move higher! Given that we trade Apple nearly every month of the year, I thought it was time to look at the July to September option expiration time frame returns since 2002.

Above, you can see that Apple has seen many strong years of returns during the July to September period. However, there is one time that the stock dropped -15% which was in 2008. Overall, the returns seem great during this period. Given the -15% worst return I get an estimated max low of $515.60 for September expiration. Right now option premiums are paying hardly anything at that low of a price. With the iPhone 5 to be released, and the average gains/loss kept in mind, we see the following trade as a conservative money-maker:

Option Trade 1: AAPL - Sell Sept'21 545/540 put spread (Bull Put Spread)

(Sell 545 Put/Buy 540 Put)

Size - 10% of Option Spread Portfolio Size = (2 spreads)

Entry: Sell Limit: 0.40 (note: this premium is not available just yet)

Stop Loss: 1.00

Exit Price: 0.00

Max Return: 8.69%

(Max Return Calculated on Return on Risk from my entry, not Return on Margin)

This trade listed above is the "bread and butter trade" I think it's great for some income generation. However, given how strong Apple is looking now coupled with the its strong returns in the past July to September periods I also suggest this other trade.

Option Trade 2: AAPL - Sell Sept'21 570/565 put spread (Bull Put Spread)

(Sell 570 Put/Buy 565 Put)

Size - 5% of Option Spread Portfolio Size = (1 spread)

Entry: Sell Limit: 0.80

Stop Loss: 1.80

Exit Price: 0.00

Max Return: 19.04%

(Max Return Calculated on Return on Risk from my entry, not Return on Margin)

The trade listed above is betting more on the history that AAPL has posted a positive return more than a negative return during this July to September period. I think this is still comfortably out of the money. If you want to play the data by the book then I suggest an at-the-money bull put spread which I may suggest later but I need to see how the market acts in the next week or two.

Disclosure: I own short calendar/vertical spreads on GLL (I'm short GLL). I'm short SCO and GLL. I'm long AAPL. I'm short UVXY

I have inserted footnotes to show my references for some information.

Charts and data come from Finviz.com and Tradingeconomics.com.

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