The time has almost arrived for Apple Inc. (NASDAQ: AAPL ) to deliver its latest corporate confessional. But if you're like me and see opportunities for AAPL stock bears and bulls today; rather than wait on the sidelines, position for both using a long put butterfly spread. Let me explain.
All eyes will be on AAPL stock Tuesday night as the world's largest company releases its Q1 results. And if you're like some on Wall Street, sitting on one's thumbs in the face of headwinds from China or a troubling price chart near-term might seem like a good idea until that often enigmatic and magical value level is reached.
Better yet, why not take a smart and well-calculated play that looks to benefit from today's market risks; or puts bullish investors in a much more secure position to buy Apple shares as they approach that elusive value price? In this strategist's view, now you can using a price chart and a smartly-built AAPL options butterfly.
AAPL Stock Weekly Chart
When I last wrote about AAPL in late February shares had raced higher into a tenuous double-top formation. The price action followed a surprising and rather dramatic "V-bottom" pattern which reversed a breakdown of channel support. But while the initial failure didn't deliver for Apple bears, it does look like a technical canary for a larger price correction in shares.
Over the past two months and after topping, AAPL went on to establish a lower high pattern. The continued bearish behavior happened to work out great for a detailed put spread which ballooned in value from $1.57 to $7.50 per contract.
In the here and now shares are once again below channel support and the 200-day simple moving average. Blame it on what you will, but the second attempt at breaking down does look poised to build upon AAPL stock's corrective move - and Tuesday night's earnings release acting as a catalyst.
So, what are we looking at for downside? In our estimation a more sour AAPL, at least as far as Wall Street's narrative is concerned, would be much sweeter as an investment near $135. That's effectively a test of the prior cup breakout and 50% retracement level from the 2016 pattern low and what's likely strong value on the Apple price chart.
Apple Stock Bear-to-Bull Put Butterfly Spread
Our value area is still roughly 15% below current prices. Of course, it's impossible to say when and if that type of decline actually transpires. The good news is the AAPL options market can allow traders' to position as bears in the short-term, but act as value investors at lower levels with increased flexibility and price security - all at the same time.
One reduced and limited-risk strategy that accomplishes these two contrasting goals is for a trader to purchase a below market, long put butterfly spread. Reviewing the Apple's options and shares at $162.29, the June $155/$145/$135 put combination for $1.35 is a favored position.
On an expiration basis, the spread allows for a generous profit zone from $153.65 all the way down to a very sour, but supportive $136.35. The price sits directly above the discussed value level on the AAPL stock chart. The sweet spot for profits is $145 with a return of $8.65 being captured.
Alternatively, with less than 1% at risk compared to owning Apple shares today; value-minded bulls might be better off forgoing immediate profits and gratification from the put spread. Rather, investors should appreciate how paying a small premium to buy AAPL stock at lower levels might still allow for a big eventual winner or the ability to walk away with a minimal loss and no position in Apple if circumstances and one's outlook changes dramatically.
Investment accounts under Christopher Tyler's management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual.For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits .
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