Wednesday, April 17, 2013

Rolled Apple Call Out and Down

As discussed here, CCI is long the Apple (AAPL) Jan $300 call as a stock replacement and intends to  write shorter term calls against the position.  CCI's primary thesis is that Apple's low valuation will provide a floor under the stock, but margin pressures from lots of worthy competitors will keep a lid on the stock. Hence, there is a good probability Apple will trade sideways for awhile, and this options strategy would capitalize on that situation.

Today, Apple stock fell to the $400 level. This is certainly not good for this leveraged long position but realistically within "normal volatility" for this type of position.  The movement in the stock price prompted CCI to roll the May 3 $475 call out to the May 10 $460 for a $1.69/contract credit.  The May 3 call trade netted a $2.74/contract gain.  As previously discussed, possible scenarios include:

  • in the event that Apple continue downward - more pain. But this trade lowers the break even point by about another .5%, and will provide the opportunity/time to continue this process to further to lower the cost basis.
  • in the event that Apple surges over $460 by May - CCI would be "forced" to take the leveraged 20+% profits in the position. Fyi, earnings on April 23 , so this type of surge is possible on good news. This position may need to be adjusted around the time of earnings.
  • the stock continues bounces back into the same range as the last quarter - CCI will repeat this process to harvest more option premium. 
Apple reports earnings next week which will likely present opportunities to adjust this position again. 

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