On Aug 24th many stocks showed us ‘How Low is Low’.. Read on…
I put these numbers in a table (this page).. how low did some popular stocks go during the market plunge last week (24th Aug ’15) ?
I saw this morning- (first of SEP, 2015) the market plunge 400 points from the open and noticed stocks like AAPL were still trading way higher than the dip of the 24th August. AAPL went down to 92 dollars a share on Aug. 24th. Today (Sep 1st, 2015), the market is down over 400 points but AAPL is still trading at 110.27, about $20 above the low set last week. I have inferred it will take a crash worse than that of Aug. 24th to dip AAPL below $90 a share.
I trade options – and I see an opportunity. I sold AAPL SEP15 90-strike PUTS @ .52 ($52) each. They expire the third
Friday of SEP, about 17 days out. I brought up the options in a matrix of AAPL, Apple options for the SEP15 class, and saw the OTM% (the probability of that option being Out-of-The-Money for the 90PUTS) at expiration day was 90.67%. That represents my mathematical odds of winning the trade. This means there is over a 90% chance AAPL will not be below $90 in 17 days when the options expire.
At this moment ( 1:39 PM on September 1st, 2015) AAPL is trading 110.15, about $20 above the low it demonstrated on Aug 24th’s week. I like those odds. And since the market was down -400 today and AAPL only was down 2.75 and still $20 above last week’s low, it gives me some confidence that this trade could work.
So I will profit if:
- AAPL goes UP
- AAPL stays the same
- AAPL goes down, but no more than $20/share in the next 17 days.
If I was trading the stock of AAPL, I would have to be right about the amplitude and direction of the price movement of the stock. Selling 5 of the options will make me about (5 x .52) = $260. Not bad for a mouse click. (by the time you read this, conditions could be different, so this is NOT a trade recommendation only an illustration of how options can be sold).
There is a way to limit the risk on this trade by using an option spread trade, by buying a strike lower than 90 to create a limit for possible losses, should AAPL get below the 90-strike. (see Vertical Credit Spread trading).
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