How to Play for an AAPL Bounce and Pin

• stevenplace
• May 18th, 2011

Here’s a bit of a more advanced trade that looks for AAPL to run a bit higher into options expiration, but not much more. This is a really tricky, advanced trade that requires a ton of margin and adjustments are necessary if you end up incorrect on the trade. Here’s the idea:

So what this trade does is it looks for a move higher, but not a move beyond the most recent swing highs. Here’s the risk profile:

So you can see 3 different scenarios:

1. AAPL Under 345: You’re max loss is the debit paid of 28 bucks per backspread. This has the highest odds of occurring, but the max risk is minimal.
2. AAPL between 345 and 355: Nice area of profitability, with the max profit at 350/share, which is about $475
3. AAPL above 355: You end up net short AAPL above there, 100 shares per backspread. Not fun if AAPL rips higher, so you’d have to trade stock against it.

The current pricing is not really anticipating a move back into those prices, but anything’s possible with 2 days left to expiration and I could envision 345-350 acting as a magnet, as the market will want to retest those levels to make sure that sellers will step back in.

Here are the levels overlaid on an intraday chart:

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Tickers: aapl

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