Apple Stock continues to remain under selling pressure and I have turned now to Put Selling until the stock recovers. Leaving aside all the talk about death crosses and what it means for the entire market, I believe Apple Stock is experiencing some investor angst over the introduction of the iPad Mini which is gaining in popularity over the iPad 4 which has better profit margins. I have an iPad 4 and while I feel the screen is excellent for reading for we seniors, the iPad 4 is heavier than the iPad 2 and not really a “carry anywhere” type product. So instead of taking market share away from other mini tablet devices, the iPad Mini is taking market share away from the iPad 4. This is a no-brainer for a lot of people as the iPad mini can easily be used to substitute for the full iPad for the majority of people.
Meanwhile the smartphone numbers do not show Apple iPhone making huge inroads but basically holding their existing market share. With the Christmas Season upon us this is the time when Apple sales should be soaring. As that does not seem to be the case Apple Stock has been in a severe decline for sometime.
The Shark Options Trading Strategy on Apple Stock
This year, I am using the Shark Options Trading Strategy with Apple Stock, which is one of the four strategies discussed in my PDF article 4 Investment Strategies For Ultra ETFs which is in my shop for $25.
The Shark option trading strategy relies on the Fast Stochastic and Moving Averages combination of technical tools to pin point when to buy and sell both puts and calls. The results this year have been excellent and I have used this strategy for more than two decades on stocks and slowly refined it over those two decades using different technical analysis indicators until settling on the Fast Stochastic and Moving Averages combination I presently use.
Part of the reason the Shark Strategy has done so well is because stocks like Apple Stock are similar in characteristics to Ultra ETFs. They have wider swings than most stocks, high volatility and large option premiums. This makes this type of stock ideal for the Shark options trading strategy.
Put Selling Apple Stock Clean and Simple
But each time Apple Stock has declined, it hits a heavy resistance point, making Put Selling clean and simple. I watch for bottoms by simply keeping an eye on the stock and looking for when it pulls back, stalls, bounces and then pulls back again. This double bottom is a good indication of when to turn to Put Selling. As well the Shark Strategy stops giving signals when the stock trends sideways, both at the top of a move higher and the bottom of a move lower. So when the Shark Strategy no longer provides me trading opportunities I know when to look for a chance to do Put Selling against Apple Stock.
The Apple Stock chart below shows the present and last bottom in Apple Stock as well as the four times this year I have turned to Put Selling.
Put Selling Apple Stock in 2012
With Put Selling a stock like Apple Stock, I have no interest in ever owning shares. Instead in a move similar to my Shark strategy, I am just Put Selling against the weekly options and then buying back as the put option values change daily.
For example, this morning Apple Stock opened at $525 and promptly fell to 521.
Use Previous Day’s Options Range
Before the market opens I review the previous day’s price range for the $480 put strike for 1 week out and look at the open and close (see chart below for today). Using the previous day’s opening and closing amounts for Put Selling valuations works because it offers a range to select my day’s sell to open and buy to close pricing.
I select the larger number for my put offer and then add about 1% or so and use the lower dollar figure for my offer to buy back and again I reduce it often by about 1%.
Put In My Sell To Open Put Selling Offer Just Before The Open
I then put in my offer just before the open. I like to wait until just before the market opens as I am looking for some indication as to where the stock may open. There is no point in putting in my offer based on the previous day if the stock opens considerably lower than the previous close.
Put Selling Without Any Technical Formula
There is no mathematical formula or any “technical analysis system”. I go by “seat of the pants”. For example the previous open was $3.50 which was higher than the close, so I put in an offer to sell (Sell To Open (STO) about 1% higher at $3.80. This morning at the open I got a fill.
As soon as I get the fill I look at the previous day’s close which was $2.71 which was lower than the open. I put in my offer to buy back my naked puts for about 1% less, in this case $2.45. I was filled later in the morning. Presently at the time of writing this article I am sitting again with an offer to sell for $3.50 for the same strike.
On the above trade this morning I picked up $1.35 on 5 put contracts or $675.00 before commission. I have often been able to buy and sell twice and sometimes three times during the day. It all depends on how volatile Apple Stock is for that day.
Put Selling Apple Stock Weekly Options Chart
The chart below shows the options pricing this morning at 11:26 AM. You can see the previous open and previous close. Whichever is the higher I use for my offer to sell and the lower my offer to buy to close. I add 1% to the high dollar amount in my offer to sell the $480 naked puts and I deduct 1% from the lower number in my offer to buy to close once I get the fill.
You can see today’s day range so far. I find by using the previous days open and close as my “yardstick” I have a good chance to get fills by staying within the previous day’s range. It is the volatility of Apple Stock that keeps the premiums decent for this type of day trading.
Put Selling Apple Stock Based on previous day's open and close option prices
I am staying with the following week’s options and not the present week. After almost 4 decades now of doing options I have found that it’s better to give myself some room to breath and having all of this week and part of next week before my options expire gives the stock room to move up or down and often I can rescue any trade that goes sour.
Put Selling The Apple Stock Weakness
I am only interested in Put Selling against the weak points in the stock. Otherwise the Shark strategy is far better since it pinpoints when to buy calls for when the stock is rising or sell puts for when it is falling. Naturally those returns will be much higher and that is to be expected since the Shark strategy is following the stock movement for longer periods of time.
But Put Selling these low points in Apple Stock is simple and requires no complex study or analysis. I don’t use timing tools or technical analysis. I basically look at the chart and see that Apple Stock is trending sideways once it has fallen. I then apply my strategy and trade daily.
Once I get the fill on the sell side of the naked puts, it is simple to put in my offer to buy to close and then go on with my day. I check it periodically and if I have a fill, I then go back to putting in another offer to sell.
Put Selling Daily Returns Are Excellent
Earning these kinds of returns on a daily basis is not only worthwhile but in general even if I sell the naked puts based on the previous day’s open or close and I am wrong, I have found that the next day or two I am able to close the trade for a profit simply because Apple Stock has very large swings in valuations. The returns are excellent and my capital is at risk for very short periods of time.
I have done this type of Put Selling during four periods this year and as the bottoming process takes time, I find I usually have a good two or even three weeks when I can apply this strategy.
Put Selling Any Rise In Apple Stock
I see no reason why this simple Put Selling strategy would not work during a rise in Apple Stock because the stock is basically moving higher anyway which is exactly what a Put Selling strategy needs to be successful. Therefore applying this strategy during the past year when Apple Stock was rising would probably have produced very good results. I used the Shark Strategy so I have no idea how well this Put Selling strategy based on the previous days pricing would have worked or what results would have been but I am sure they would have returned a very nice profit.
Why Turn To Put Selling During Apple Stock Weakness
Just to sum up this article. I use this Put Selling strategy when Apple Stock hits these periods of weakness because the Shark trading options strategy does not work when the stock is trending sideways. There are periods when using the Shark strategy when it does not give buy or sell signals since the stock is not trending higher or lower. Therefore when the stock trends sideways I turn back to Put Selling but stay out of the money. The Put Selling premiums for the out of the money strikes are large enough that I do not have to stay at the money. With Apple Stock I would never sell at the money puts since I have no interest in owning stock and 500 shares at $525 for example would require $262,500 of capital. I have no interest in tying up that much of my capital in this one stock.
As well the Shark strategy requires very little capital in comparison since it is a strategy based on buy and selling puts and calls. When Put Selling and staying with naked puts my concern would be the chance of assignment. Therefore I always wait until Apple Stock is trending sideways after a sell-off before entering Put Selling trades.
Why Not Naked Calls?
I see no reason this Put Selling strategy could not be tweaked to be used for naked calls. It is not something I have done and again the capital requirements should the stock move higher and I be assigned are restricting to my portfolio. I prefer naked puts partly because I have done Put Selling for so many years and I am very comfortable with it. If I do naked calls it is normally during bear market periods or when a stock is in a serious decline and then I often find that buying puts accomplishes the same thing. The other advantage buying puts has over naked calls is I know as soon as I buy puts what the total loss can be if the trade turns against me. Therefore naked calls is not a strategy I use often but as previously stated, I do not see any reason my Put Selling strategy for Apple Stock could not be used for naked calls.