DRJ: Why I decided to short Apple
After Apple's "Bendgate" controversy arose last week, I established a short position on the iPhone maker.
I decided to use a put spread , as that carries much less risk than shorting the stock. So I bought the AAPL October 100 puts for $1.40 and sold the October 95 puts for $0.40.
That trade paid off quickly, as AAPL fell from just shy of $103 to $97.72 in the next 24 hours.
I took profits on 50 percent of the position at that time, turning that $1 spread investment into $2 for a 100 percent profit. (The reason I took profits was my normal discipline of taking money off the table whenever a spread doubles.)
The spread shrank back to $1.20 as shares rallied back up to $101.50, but I continued to hold it.
As I said on CNBC yesterday , my reasons for this position included supply and software issues, as well as the bending problem with the iPhone 6 Plus. And if hedge funds face redemptions and need to raise money, then Apple may be serve as their piggy bank--and that could bring further pressure in the short term.
Yesterday AAPL fell back below $100, down 1.56 percent to close at $99.18. Our October 100/95 put spread is once again very profitable, trading actively for $1.70, as our long 100 puts are going for $2.30 and our short 95 puts for $0.60.
We still have time left in this trade--16 days until October options expire--and the market hasn't shown much reason to be bullish, so I will hold this short position with a stop at my $1 entry cost.
(A version of this post appeared on InsideOptions Pro yesterday.)
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