Shares of Apple (AAPL) had a tough day of trading on Thursday, ending the day almost 5% lower. The news was not positive.
XBank of America downgraded the stock, and a top executive was forced to leave after a video went viral of crude remarks.
This follows negative news on Wednesday, when it was reported that the company plans to ditch production increases for the iPhone 14 due to demand concerns.
Despite the bad news — and losing 21% year to date — Apple stock ironically remains an outperformer in the Nasdaq. With heightened volatility, investors can take advantage of rangebound trading in Apple by using a short straddle.
A short straddle is an options strategy where an investor takes no view of the up or down direction of shares on inception. Instead, the trader believes shares will move less either way than the market is anticipating.
With Apple stock trading around 141 a share Friday, investors can consider placing a short straddle by selling the 141 call and 141 put on the Oct. 21 expiry. This trade can currently be placed for a credit of $11 per share, which also coincides with the maximum gain of $1,100 if the shares trade at 142 on expiration.
An investor will earn a profit if Apple is trading at 130 to 152 on expiration.
Apple Options Appear Expensive
The Oct. 21 straddle on Apple stock currently has an implied volatility of 40%. This is significantly higher than the 30%, and 32% volatility Apple has realized over the past 30 days and year, respectively. This trade will not have any exposure to Apple's next earnings event, which is due Oct. 28.
While this volatility appears elevated, volatility is high across all indexes. This indicates that the market is expecting some large moves. Because this trade has unlimited risk, investors should close the trade if it goes against them, and limit the loss to no more than double the initial credit received.
Apple has an IBD Composite Rating of 80. Shares are trading below both the 50- and 200-day moving averages, though they remain well above the 129.09 low reached in June.
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The post This Short Straddle On Apple Stock Can Take A Bite From High Volatility appeared first on Investor's Business Daily.
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