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Trading Apple Using My Daily Options Strategy: Spotting The Lows

|Includes: Apple Inc. (AAPL), BIDU, CF, CRM, FFIV, GOOG, NFLX, POT, SMA, VMW, WYNN

When I began developing my daily options trading strategy over eight years ago, I initially began with only a few select stocks. The first was Potash (NYSE:POT). As time moved on, I began implementing more stocks into the strategy and eventually came up with the current list of nine (9) main stocks, which are basically ones that are over $100.00/share, have liquidity with their options, large daily price swings (ranges), and that also have a fair bid/ask spread. To read more on my strategy, please see this link here Here is the link to my e-book on this daily options strategy.

I like to start every article with the basics on how to use this strategy with the five technical indicators. Here is a quick summary:

  • Bollinger Bands - I use the 12,2,2 as my parameters, i.e. (12) as the Simple Moving Average (NYSE:SMA) and standard deviation, (2) as the standard deviation of the top band, and (2) as the standard deviation of the bottom band. As a personal preference, I will not begin to even consider making a trade until I see the current price action move below the bottom band (calls) or above the top band (puts), but this is only one of the indicators needed out of five (5) total.
  • Relative Strength Index - I use a length of twelve (12). The RSI is an indicator that shows when a stock is at overbought and oversold levels. It has a range of 0-100. A reading on the RSI of 70 indicates overbought levels, while 30 is considered oversold. Some traders like to go even below the standard 30 level for a buy confirmation, but it is ultimately the trader's choice.
  • Intraday Momentum Index - The IMI is invaluable as far as I'm concerned for an options trader who gets in-and-out of positions quickly. The Intraday Momentum Index is similar to reading the Relative Strength Index, in that both of them have a range of 0-100. Again, 70 indicates overbought, while 30 is considered oversold. I also use the range of twelve (12) to correlate with the RSI. Again, it is the trader's preference as to what length works and what he or she likes to use. The Intraday Momentum Index is a very powerful technical indicator to use for any type of trader.
  • Money Flow Index - The MFI follows the IMI as the next indicator. The MFI is a momentum indicator that is used to determine the conviction in a current trend by analyzing the price and volume of a given security. The MFI is used as a measure of the strength of money going in and out of a security and can be used to predict a trend reversal. The MFI is range-bound between 0 and 100 (like the RSI and IMI) and is interpreted in a similar fashion as the RSI and IMI. The fundamental difference is that the MFI also accounts for volume, whereas the RSI only incorporates price. It is also different in the fact that instead of the number 30 indicating oversold levels, the Money Flow Index uses 20 as oversold and 80 as Overbought.
  • Full Stochastic Oscillator (do not use only the Fast or Slow Stochastic) - Used by many Forex traders, I find the FSO tremendously helpful in my trades as another indicator that confirms what the previous four have already done. Combining all of these indicators together really validates when it is an opportune time to buy. The FSO is a combination of the Slow Stochastic and the Fast Stochastic and is more advanced and more flexible than the Fast and Slow Stochastic and can even be used to generate them. Readings above 80 act as an overbought signal while readings below 20 act an oversold signal. The parameters I prefer to use are (10,6,6) for daily trading.

The stocks that I currently use with this strategy with are the following:

  • Apple, Inc. (NASDAQ:AAPL) - is right up there with (NYSE:CF) as a favorite.
  • CF Industries - strategy works great with this stock.
  • Google (NASDAQ:GOOG) - Google works extremely well, too.
  • Baidu (NASDAQ:BIDU) - while I don't trade as frequently, I have always had success when I do.
  • Wynn Resorts (NASDAQ:WYNN) - another stock that works very well.
  • Netflix (NASDAQ:NFLX) - look for put option opportunities.
  • VMware (NYSE:VMW)
  • F5 Networks (NASDAQ:FFIV)
  • (NYSE:CRM) - look for put option opportunities.

There is probably no other stock around that is so easy to spot a daily low point than Apple using this strategy. Understandably, it is very expensive to purchase Apple stock outright. Apple is currently trading at about $610.00/share, and just 100 shares alone requires substantial funds to put your money to work. Not only that, but you are basically hostage to the stock going up. My strategy aims to get in-and-out of your trade as quickly as possible, usually in minutes.

Apple has become my favorite stock to trade using this strategy, followed closely by CF Industries. The key is to wait until the Bollinger Bands start expanding (never make a trade when the bands are narrow), and to get your trade ticket ready. Apple moves so fast and so quickly that any delay or procrastination in doing so may cost you some serious cash. It is also important that you wait for the other four indicators (the RSI, IMI, MFI, and FSO) to hit their buy points. Once that is reached, it is all about the Bollinger Bands. Never make a trade until the price line 9action) is below the bottom Bollinger Band. In fact, I like to let it "bleed", which means that when a stock is falling fast, that you allow it to sit below the bottom Bollinger Band, stay there just for a bit, and then pull the trigger on the call option trade.

There have been numerous examples over the past six months when Apple was in a downtrend, riding the bottom Bollinger Band, and continued to fall, even though the price action fell below the bottom Bollinger Band. This is what I am talking about when I mention, "letting it bleed" until there is a stoppage in the stock price falling.

Now that the implied volatility has come down after Apple reported earnings on Tuesday, the option prices are much cheaper than they were before the release. This allows for more contracts to be purchased without having to pay too high of a premium.

To summarize, keep an eye on Apple at all times and have your trade ticket ready to go when you see Apple's stock price falling quickly, as a trading opportunity can literally present itself in minutes. There is no other stock that I use with my daily options strategy that gives the trader the chance to make a trade and have the high probability that they will be able to sell it just as fast.

If you have any questions, please leave a comment or send me an e-mail.

Disclosure: I am long AAPL, AKS.