Whatever the cause of the lag in Apple shares, NASDAQ OMX Alpha AAPL vs. SPY Index ( AVSPY) was down 2.5% on the day as a result. We have traded options on this index profitably before, but for those who are unfamiliar, AVSPY tracks the daily total return of AAPL versus SPDR S&P 500 ETF ( SPY). Essentially, a long position in the index would be a bet that Apple will outperform the broad market.
An interesting trade was filled in this product on Tuesday. Typically, customers trade AVSPY options in lots of 5 or 10 contracts, but one trader sold the March 155 puts naked 3,000 times at a price of $7.90, about a half hour before the market close. That's a very bullish bet that Apple will continue to outperform over the next six months - if the trader is correct, the value of the premium collected is $2.37M.
I don't care to commit to a position that far out in time, but I do share the same general view. Who doesn't? SPY is still 13% exposed to the financial sector, the anchor around the neck of the U.S. economy. For AAPL to underperform the broad market over time would require a serious misstep from Cupertino.
Because premiums in the options are about as high as they've ever been, a call purchase is not a great idea. Traders who share the thesis of the trade could establish a synthetic long position -- effectively "owning" AVSPY even though the underlying is not tradeable -- by buying an at-the-money call and selling an at-the-money put. I want to be positioned with less risk, so let's sell a vertical put spread on the view that AAPL will continue to be a relative market leader, even if the market as a whole doesn't go anywhere. One thing I like about these relative value plays is that they don't require a directional opinion about stocks in general, i.e. this trade is still viable if you are generally bearish about the market.
Trades: Buy to open AVSPY November 150 puts for $1.95 and sell to open AVSPY November 155 puts at $2.75.
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