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New Option Plays

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AAPL None None

Play Editor's Note: I was expecting the market to eventually trade lower but we wanted to short the post-bailout-vote bounce first! Over the weekend the prevailing logic was that a deal would get done. I was looking for a bounce, which we could then use as an entry point for bearish plays. Obviously that didn't happen. Investor pessimism and fear is skyrocketing but stocks rarely fall in a straight line for very long. If you want to buy a bounce, I'm not suggesting you try, but if you are looking for one anyway, I would watch for the NASDAQ composite to find support in the 1925-1900 zone. I would watch the S&P 500 to find support in the 1090-1075 zone. One way to play the NASDAQ is the QQQQ or the QLD, which is the double-long ETF. If you want to buy options on the S&P 500 try the SPY or the SSO, which is the double-long ETF. If you are interested in double-shorts you'll want the SDS for the S&P 500 and the PSQ for the NASDAQ.

New Calls

Apple Inc. - AAPL - close: 105.26 chg: -22.98 stop: 97.45

Company Description:
Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone. (source: company press release or website)

Why We Like It:
The sell-off in AAPL looks way overdone. Shares gapped down from $128 to open at $119 and then just plunged. Fueling the move was two different analyst downgrades. One analysts slapped a $115 price target and said AAPL would probably have to cut prices this holiday season to keep up sales, which would negatively impact earnings. The stock eventually found investors willing to buy the dip near psychological support near $100. The low was $100.59. More aggressive traders may want to buy calls on AAPL right here. I suspect AAPL will retest the $100 region tomorrow since the broader market is still sinking due to the bailout uncertainty. I am suggesting that traders consider buying a dip in AAPL in the $102.50-100.00 zone with a stop loss at $97.45. You may want to play with a stop loss closer to $100.00. This is a very aggressive play. We are technically trying to "catch the falling knife". If triggered at $102.50 we will have two targets. Our first target is $112.00. Our second target is $118.50.

Suggested Options:
We are suggesting the November calls.

***CAUTION*** The VIX has surged to multi-year highs and that pumps up the price of options. These options listed below are "expensive". AAPL could hit our targets and it's possible the options actually go down in value if the VIX deflates too quickly. Bear this in mind as you plan your trades.

BUY CALL NOV 100.00 QAA-KT open interest= 233 current ask $19.10
BUY CALL NOV 110.00 QAA-KB open interest= 235 current ask $14.25
BUY CALL NOV 115.00 QAA-KC open interest= 294 current ask $12.15

Picked on September xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 10/22/08 (unconfirmed)
Average Daily Volume = 28.5 million

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