DailyPlay – Opening Trade (AAPL) – June 16, 2023

AAPL Bearish Opening Trade Signal

View AAPL Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 6 Contracts July 28th $190/$195 Call Vertical Spreads @ $1.78 Credit per contract

Total Risk: This trade has a max risk of $1,932 (6 Contracts x $322) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $322 to select the # shares for your portfolio.

Counter Trend Signal: This stock is currently bullish but generated a counter-trend sell signal, therefore we expect this stock to not continue higher over the duration of this trade.

1M/6M Trends: Bullish/Bullish

Technical Score: 9/10

OptionsPlay Score: 103

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

The market is starting to play chicken again with the Fed again. Equity markets have now completely shrugged off the idea of further rate hikes, pricing in the exact opposite, rate cuts. The 2y-10y treasury yield curve has inverted further towards -100bps, suggesting concerns of a hard landing and AI tech stocks have hit a new all-time high. Despite being overbought by most measures, momentum continues to push equities higher as the fear of missing out has taken over the markets. Our portfolio is currently positioned with all bullish positions given the current market trends, however I currently advocate adding neutral positions given the stretched nature of the current market rally of over 16% in the past 3 months, betting on a pause or consolidation.

I’m looking at AAPL, which has generated a counter-trend sell signal on both the daily and weekly timeframes. After a 50% rally since Oct and now trading at 28x forward earnings, despite only expecting about 9% EPS growth for next year, it looks stretched. However, keep in mind that doesn’t mean it can’t get more stretched and trade at even higher valuations. Which is why I’m taking a neutral tone with a bit of room by selling an OTM call vertical and limited risk. I’m selling the July 28 $190/$195 Call Vertical @ $1.78 Credit.