Apple (AAPL) fans and shareholders alike are still gleaming with pride after last week's earnings report. The company that always exceeds expectations peaked above analyst's highest estimates, and after the first day of profit taking, the stock had a swift resumption of its bullish trend. The Cupertino-based company is firing on all cylinders and maintains a strong buy rating for most investors as the outlook into 2012 remains strong.
Then politicians stepped in. The stock was drug down for a 3% hit after the QQQs broke through their most recent ascending channel on Wednesday and goes to show that even the strongest stocks are vulnerable here. We're one bad headline away from what could be some serious selling and funds know that. I'm not interested in attempting to time a move down, but I do want to look at levels we could step back in on the buy side in AAPL and options strategies that lend themselves to these potential moves. The first clear area we might find buyers would be $383.90. This is logical after the earnings gap but if this level gives way stand back until we get back to $365. By this time I would expect the market to be in bad shape as well. $365 would take us back to the stocks previous high made in January and we could then begin looking for a bounce.
One way to take advantage of panic selling with options is to step in on the sell side of the 380 or 385 puts as we move lower. If these contracts fall quickly they'll have an increase in volatility and selling these options could lead to a nice capture of premium if our first support level holds. You can set stops on these positions just like you would buying an options contract or you could have the stock assigned to you if you're looking to take part in a longer-term move.
I'll now be looking in the $155 area where we find previous highs and our pre-earnings gap. For traders that don't mind picking up additional contracts in a dip $155 could be your first entry with delta .70 call options and add to the position should we move down to $147. This is a stronger area of support and you could set stops on the entire position below this level.
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John is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade, which was released in January 2006. Carter has also been featured on ABC Money. He and Hubert Senters founded and run the Trade the Markets web site.