Apple Inc. (NASDAQ: AAPL) shares are trading higher with the broader market after the Federal Reserve announced that it will make $200 billion worth of Treasury securities to financial institutions in an effort to increase liquidity, combat the global credit crisis, and stave off a recession. This, combined with a survey released this morning showing that economists believe the economy will avoid a recession, has investors enthusiastic about AAPL. 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 $87.92 last March, the stock hit a one-year high of $202.96 in December. AAPL opened this morning at $123.72. So far today the stock has hit a low of $122.00 and a high of $125.00. As of 12:20, AAPL is trading at $123.61, up $3.92 (3.3%). The chart for AAPL looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $95 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 9.6% return in just one and a half months as long as AAPL is above $95 at April expiration. Apple would have to fall by more than 22% before we would start to lose money.
AAPL hasn't been below $95 since last April and has shown support around $120 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 between $115 and $120, where it has steadied itself over the past month.
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.
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
Reader Comments (Page 1 of 1)
3-12-2008 @ 4:07PM
gumby said...
Stop contributing to your 401K and IRA accounts and see which stocks Wall Street would save the most .... Will be very interesting!!!! This will show which stocks are sucker stocks that are used to finance Iraq War, bank bailouts,, solar subsidies, etc.... Washington DC Beltway mental idiots could have done to help bolster Social Security but they chose not to "touch the thrid rail" as such.. What a bunch of bullshit!
Social Security receipents got just paltry 2.3% raise this year... Woe on you, Washington DC Beltway mental idiots...