Option Investor

New Portfolio Position: AAPL "Bear-Call" Spread Projected Gain = $250

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AAPL - Apple Computer $38.24

Apple Computer (NASDAQ:AAPL) engages in the design, manufacture, and marketing of personal computers and related software, services, peripherals, and networking solutions. It also designs, develops, and markets a line of portable digital music players along with related accessories and services, including the online distribution of third-party music and audio books. The company's products and services include the Macintosh line of desktop and notebook computers; the Power Mac line of desktop personal computers; the iPod digital music player; the Xserve server; Xserve RAID storage products, a portfolio of consumer and professional software applications, and a variety of other service and support offerings. It also offers various associated Apple-branded computer hardware peripherals and sells a variety of third-party products and supplies.

Last year's "darling" of the computer industry is finally succumbing to economic reality as the company's share value stumbled again this week on reports that sales of its iPod digital music player appear to be slowing. An article on AppleInsider quoted unidentified sources as saying that shipments of most iPod models are "flat or declining" for the first time since the device was launched in 2001 and that Apple was overstocked in some models of personal computers and other products. In addition, Investment firm Goldman Sachs said it expects shipments of Apple's digital music player to be flat this quarter, thus there is certainly potential for a fundamental "change of character" in Apple's future. Given the recent technical weakness, the issue will likely move in a lateral pattern during the coming weeks and traders who agree with a neutral-to-bearish trend for AAPL in the near-term should consider this position.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (conservative - bearish/credit spread):

BUY CALL JUL-47.50 QAA-GW OI=19778 ASK=$0.35
SELL CALL JUL-45.00 QAA-GI OI=60497 BID=$0.55

POTENTIAL PROFIT (X 10 contracts @ $0.25) = $250
MARGIN REQUIREMENT (X 10 contracts) = $2250
COST BASIS = $45.25


Once the spread is open, traders should place a (contingent) order to close the short ($45.00) call options if the stock price moves above $44.25 on an intraday basis. A "net-debit" order of $0.50-$0.60 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.

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