Bearish Apple (AAPL) Option Trade

After charting the DJIA this weekend and AAPL this morning I decided to make a bearish trade on AAPL.  I won’t claim this is much more than a gamble since the April options expire in just five days which means I don’t have much time for AAPL to turn in my favor.  I’m expecting the markets as a whole to take a breather after five straight positive weeks and hitting resistance in the chart that I drew.   At the same time, I expect AAPL to follow suit and dip too.  This trade is 95% based on its chart and 5% based on my belief that the economy has not rebounded enough yet to warrant such a quick run up.

While AAPL was trading at $119.20 I bought one AAPL 120 put (QAAPD) for $3.12 and paid $322.74 and sold one AAPL April 115 put (QAAPC) for $1.14 and received $113.24.  My total debit was $209.50 with commissions.  My limit order was set for $2.00 which means that TD Ameritrade saved an extra $0.02 for me when the order executed.  With AAPL trading 80 cents in the money I was risking around $1.30 if AAPL stayed flat.  Clearly AAPL is volatile, so I could lose $209.50 pretty easily.  I need AAPL to be below $117.80 by the end of the week to break even with commissions.  The most I can make is around $280 with commissions taken into account.  Even a little short of that full profit would give me more than a 100% return in one week.

In the time I took to write this post AAPL is already up above $120.75 and that’s why I said this was a gamble, but I’m sticking with my trade for now to see how the week plays out.  I don’t take these gambles often, so I need to let it play out while I still have a shot to be right.