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. should be a fairly sure deal, argues Sebastian. The trend is clear, Apple Inc. has always rallied before the big launches and then fell down after, despite the products presented being very good.
“[…] Apple Inc. 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.’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 is a ‘Buy’, says Sebastian. He argues that retailer Macy’s, Inc. (NYSE:M), which sells Ralph Lauren Corp 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 clothing articles.
“Ralph Lauren Corp 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. […],” 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.
