OPTION TALK: Is the Apple Still Green?
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June 1, 2007
In my article titled “Is The Apple Green?” that I wrote at the end of March this year, I wrote about the potential upside in Apple Inc (AAPL). Well the results are in and the price target was achieved on May 7th 2007. This article will focus on a post review and look at where AAPL could be going in the future.
The original trade outlined was a Jul07 95 Call bought for $6.90 back on March 30th. I also noted that AAPL has historically shown some nice price movements leading into earnings dates. Earnings for AAPL were due on April 25th. Looking at the price bar on April 26th showed that AAPL hit the price of $102.50. However, on May 7th, AAPL hit the price of $103.92 which is at the upper end of the target, $102-$104. This is shown in Chart 1.
Chart 1 – AAPL Daily Bar Chart
A simple strategy would be to take the entire trade off once the price target is reached and be happy that another successful trade was banked in the account. Chart 2 shows that by exiting the trade at the closing price of $103.92 on May 7th, the call option could be sold for $12.10, a profit of $520 or 75% ROI. That’s a great result in 38 days!
Chart 2 – AAPL Profit Risk Graph
So, where could AAPL go looking forward?
Chart 3 shows the current chart of AAPL. It is great to see the $20 price range still working extremely well. Looking at the low on April 18th of $89.60, it is interesting to see a retracement at the 50% level from the previous range – from $83.00 on February 28th to $96.83 on March 27th. Projecting the $20 range off the $89.60 low gives a target of $109.60. On May 15th AAPL hit a price of $110.20 before a sharp one day sell off followed! Once again, the $20 price range called the turn! If the low on May 16th is to hold, the next target price would be $103.42 + $20, or $123.42. Watch out for this price in the future!
Chart 3 – AAPL Daily Bar Chart
Apple has been a very good stock to trade. The recent price action has backed this up with the $20 range calling the market in price. This range has worked six times in a row; however it won’t go on forever. Always have a plan for the question “What if I’m wrong?” and you will keep your risk under control. In the meantime, trade the setups you see until they stop working.
Manage Your Risk!
Oscar Lee
Trading Tutors
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