Mark Sebastian, Chief Operating Officer at Optionpit.com has said in a segment on Bloomberg TV that the S&P 500 will have only “one-off sell-off” moments of half and one percentage points and will then rebound. He added that S&P 500 going down today by only 0.19% was surprising, given the geopolitical turmoil and the rally in bonds. He went on talking about Apple Inc. (NASDAQ:AAPL) and Ralph Lauren Corp (NYSE:RL), recommending to buy October Put options for the former and October Call options for the latter.
Apple Inc. (NASDAQ:AAPL) should be a fairly sure deal, argues Sebastian. The trend is clear, Apple Inc. (NASDAQ:AAPL) has always rallied before the big launches and then fell down after, despite the products presented being very good.
“[...] Apple Inc. (NASDAQ:AAPL) sold off on the iPad, the iPhone 4, the iPhone 5, all of which have been big huge blockbusters, so I’d be looking for a fade of this rally,” said Sebastian.
A good risk reward represents October Puts that cost $1.5 and have a strike price of $99, according to Sebastian. Apple Inc. (NASDAQ:AAPL)’s stock closed at $102.25, up by 0.12%. The company is expected launch new products on September, 9.
By contrast, Ralph Lauren Corp (NYSE:RL) is a ‘Buy’, says Sebastian. He argues that retailer Macy’s, Inc. (NYSE:M), which sells Ralph Lauren Corp (NYSE:RL) products, has had a good run this year, with its stock rising by close to 17%. The upsurge in the company’s second profit quarter could be attributed in part to sales of Ralph Lauren Corp (NYSE:RL) clothing articles.
“Ralph Lauren Corp (NYSE:RL) has really low implied volatility which means the options are especially cheap. I think there is a real chance [for] the stock to follow suit with Macy’s, Inc. (NYSE:M) [...],” added Sebastian.
Based on this analysis, Sebastian recommends buying October call options that cost $2.70 and which have a strike price of $170. The company’s stock is down today 0.33%, trading at $169.14 per share.