Wednesday, December 27, 2006

Trading on Apple Options News

As you know by now, every blog has mentioned the huge GAP down on Apple Computer ,Inc. (Public, NASDAQ:AAPL) on the stock options probe. What I'm concerned with is the strength in this stock. Investors that sold off in the pre-market only got out to make sure they didn't get hit with a huge crash in the regular market hours. When the market opened, there was immediate buying, and to my knowledge it seems as though every investor in the universe could care less about the news, and saw the buying opportunity.

Trader Jamie over at Wall St. Warrior seems to have caught the GAP Fade as well, as posted on Trader Mike's Comments.

I saw the up-trending pattern, and good volume and decided to take a look at how the options were trading. I thought the most practical trade would be to fade the Gap and go for the $80 strike price in January & February.

I tried to enter a limit order and hit the Bid to get in at the best possible price but what I realized is that I was getting over-cut every time and out bid on the price. The "ask" price kept shooting higher and higher and profits were just being blown out of the window.

I enter in a limit order and hit the "ask" price for $3.80 per contract on the $80, JAN '07 Apple Calls. I'm immediately filled and ready to ride the train up. I exited a few hours later for $1.10 profit, and sold for $4.90 per contract. That's a 29% gain.

I also picked up some of the $80 FEB '07 Apple Calls for a longer term perspective on the stocks release of new highly anticipated products, and cheap price at the time, since Apple's price was knocked down so much. My entry price was, $5.40 per contract, and now they're sitting at $6.40. An unrealized paper profit of $1.00 per contract, or 18.5% percent return on your money.

I'm going to have to watch this trade closely as Apple could turn on a dime with bad news currently plaguing the headlines.

1 comment:

wincity said...

Great trade, cal.