DailyPlay – Opening Trade (AAPL) Closing Trade (BSX) – April 20, 2023

Closing Trade

• BSX – 234.46% Gain: Sell to Close 1 Contract (or 100% of your remaining Contracts) April 21st $48 Calls @ $4.95 Credit. DailyPlay Portfolio: By Closing the remaining 1 Contract, we will receive $495. We took partial profit on March 29 when we closed 4 Contracts @ $1.45 Credit, then on April 6 when we closed 4 Contracts @ $2.83 Credit, then on April 11 when we close 2 Contracts @ $2.45 Credit, and on April 19 when we closed 1 Contract @ $3.65 Credit. Our average cost basis to exit this trade is therefore $2.55 Credit and our average gain on this trade is 72.41%.

AAPL Bearish Opening Trade Signal

View AAPL Trade

Strategy Details

Strategy: Long Put

Direction: Bearish

Details: Buy to Open 4 Contracts June 16th $165 Put @ $5.10 Debit per contract.

Total Risk: This trade has a max risk of $2,040 (4 Contracts x $510) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $510 to select the # contracts for your portfolio.

Counter Trend Signal: This stock has traded into an area of resistance and is expected to pull back lower.

1M/6M Trends: Bullish/Bullish

Technical Score: 8/10

OptionsPlay Score: 80

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 Wednesday’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

We don’t find an opportunity to trade AAPL based on valuations often, but I find today’s valuation difficult to get behind. Additionally the timing and risk/reward favors adding short exposure going into a tech heavy earnings week.

AAPL has rallied 35% over the past 4 months or so, which pushes its valuation north of 28x 2023FY estimated earnings. This is despite analysts expecting a 2.4% decline in EPS, inline with the S&P 500, but it represents a 55% premium relative to the market. Now, we all expect AAPL to trade at a premium, its profitability and product pipeline deserves it. But in the face of a weakening consumer, it’s hard to get behind a valuation that is priced to perfection.

Additionally, if we look at the Chart, AAPL has largely remained rangebound since the beginning of 2022 and a clear bearish resistance line has formed since. This level was just tested yesterday and I see it as a potential reversal point. We have also seen bearish divergence with MACD over the past 2 months, an additional sign of exhaustion.  

As implied volatility (IV) for AAPL approaches 52-week lows, a unique opportunity arises to obtain unlimited downside exposure with a straight put at elevated valuations and against a significant resistance level with merely two weeks until earnings. Consequently, I am considering the purchase of the June $165 puts for $5.10 Debit. This put option entails risking 3% of the stock’s value, as we move into the earnings period in two weeks.

AAPL – Daily