Apple (AAPL) rises on retail sales report

Posted Feb 13th 2008 11:54AM by Brent Archer
Filed under: Good news, Industry, Apple Inc (AAPL), Options, Technical Analysis, Economic Data

Apple Inc. (NASDAQ: AAPL) shares are trading higher this morning after the Commerce Department reported this morning that retail sales rose 0.3% in January. The announcement surprised analysts, who were expecting a 0.3% decrease in sales. This could be good news for AAPL, as analysts are questioning whether the company can keep up its strong sales record after a disappointing revenue forecast last month. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AAPL.

After hitting a one-year low of $83.00 last February, the stock hit a one-year high of $202.96 in December. AAPL opened this morning at $126.74. So far today the stock has hit a low of $125.63 and a high of $127.85. As of 10:35, AAPL is trading at $126.90, up $2.04 (2.0%). The chart for AAPL looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $90 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.5% return in just two months as long as AAPL is above $90 at April expiration. Apple would have to fall by more than 29% before we would start to lose money.

AAPL hasn't been below $115 since May and has shown support around $123 recently. This trade could be risky if the US economy continues to worsen, but even if that happens, this position could be protected by the support the stock might find around $115, where it found support in the late summer.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AAPL.

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