Apple Inc. (NASSDAQ:AAPL) has lost more than 3% on Monday, which induced a hike in its option prices. Option Action Traders believe that investors can utilize this drop in stock value by intelligently utilizing options. Option Action Traders Dan Nathan and Michael Khouw explained the ways to profits from Apple Inc. (NASDAQ:AAPL) stock through options on CNBC.
Nathan mentioned that Apple Inc. (NASDAQ:AAPL) had lost more than 6% stock price and close to $40 billion in market cap in a 2 minutes window on Monday. He added that the company had recovered half of the loss immediately and settled with just a 3% loss for rest of the week. Nathan mentioned that this stock movement has jacked up the option prices.
Nathan added that Apple Inc. (NASDAQ:AAPL) has traded within the band of $110 to $119.5 in the last 1 month and is currently trading at midpoint of that boundary. He feels that Apple Inc. (NASDAQ:AAPL) stock might stay within this boundary for few weeks to come. So he feels that stock overriding option might work at this moment. Many people might argue that stock replacement might also work.
Khouw said that many people might want to hold a position in a core stock like Apple Inc. (NASDAQ:AAPL). He feels that stock replacement might be an attractive alternative to gain some profits, which many people might follow, but for people who feel that they need to hold onto Apple Inc. (NASDAQ:AAPL) stock, stock overriding might be a most feasible and profitable option.
“[…] So the stock is about $115, that’s where it closed today. If I was going to look out to 3% or 4% on the upside, that gets me to the $119 strike. I want to look at January 2nd weekly options and why am I doing that? It’s going to catch Christmas and it’s going to catch New Year’s eve and those are basically two days that were off just adding to the potential decay of the option. The stock was $115 today, we could sell the $119 call Jan 2nd at a $1.15. That’s exactly 1% of the underlying stock price and really what it’s doing is, if the stock is basically about $119, you would get called away, you could always cover that call. But you are going to add 1% and on the downside you have small buffer to $113.85,” Nathan said.
Nathan pointed at the risk free way of making profits from Apple Inc. (NASDAQ:AAPL) stock in the following weeks.
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