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High Probability Trade: One Day Short Butterfly On Apple

|Includes: Apple Inc. (AAPL)

At the time of this writing, Apple (NASDAQ:AAPL) is 665 and the weeklies has one day and 2 hours left before expiration. Given the daily range (absolute value of movement) to be around 20 points, and that any high impact news won't be announced until next week (i.e. Apple vs. Samsung verdict), "directional" move of >20 points by close of business Friday is slim.

Based on that outlook, I created a short butterfly trade on AAPL:

AAPL AugWk4 695 Call +10 at 0.16
AAPL AugWk4 685 Call -10 at 0.44
or net credit of 0.28 for the bearish leg
AAPL AugWk4 645 Put -10 at 0.39
AAPL AugWk4 635 Put +10 at 0.19
or net credit of 0.20 for the bullish leg
For a total net credit of 0.48 ($480) but this trade ties up $20,000 of available cash until this weekend.

Assuming that for the rest of this week, the stock stays range-bound within 645 and 685, all four options will expire worthless for maximum profit.

The exit plan is when the stock dips below 650 or pop above 680, I'd begin to watch the trade closely and exit the leg that is at risk, because the potential loss will multiply quickly.

Also, as a side bet, I got a AugWk5 670 Call at 8.5 today. Note that this is week 5 not week 4. (along with my existing long positions) on the possibility that a Samsung verdict by next week will lift the stock further. My exit plan for that call is to either stop-loss at $4 or to close just prior to next Friday.

Wish me luck! Oh, on second thought, I got probability on my side so I don't need luck : )

Disclosure: I am long AAPL.

Additional disclosure: AAPL calls and this AAPL butterfly