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AAPL Trade Idea #1: Selling AAPL Puts

January 15, 2009 By Steven Place

I mentioned yesterday on stocktwits that I was going to be covering 3 possiblities for the dead-steve-jobs trade. Currently the stock is off 5.5% and looks like it could be heading lower. The markets are broken and the internals are currently weak, so be careful. These are countetrend plays so manage risk accordingly. Here's the first trade:

Sell AAPL Feb 75 Puts 4.50 or better

This strategy is done on the basis of stock acquisition and is a bullish play. It's got limited upside and unlimited downside, but the assumption is that you would want to buy AAPL at this price anyways. Here's the risk profile:

If you are called away, it puts your basis in at 70.5, which is well below the 52 week moving average. There is unlimited risk on this play and it should only be taken if you are comfortable with getting assigned AAPL stock. If the stock does shoot up then you should get a gain from both your delta and vega exposure, as the volatility will start to come out of the name.

Your max gain is the credit you received, or 4.55. And if your basis is 70.5 if called away, that's a 6.4% return on basis within a month. That's a pretty good trade.

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