Apple Inc. (NASDAQ:AAPL) has done incredibly well in the last 12 – 15 months and has given huge profits to many investors during this period. But whenever a stock gives huge gain in short period, there is always a massive risk on the downside. It all depends on certain catalyst that will be driving the Apple Inc. (NASDAQ:AAPL). But there is nothing wrong in trying to buy a protection on the downside risk and it will be even better if you can buy it for free. Fast Money traders Dan Nathan and Michael Khouw discussed on CNBC about one interesting trade, which could buy this protection for Apple Inc. (NASDAQ:AAPL) stock on the downside for free.
Nathan pointed out that whenever a big stock like Apple Inc. (NASDAQ:AAPL) give monster gains during short period, it could also go down rapidly when they disappoint. So he feels that buying a protection to Apple Inc. (NASDAQ:AAPL) stock for the downside risk is not a bad idea. He talked about an interesting trade which he thinks can buy that protection for free.
“[…] Its an options trade. And so you are long lets say a 100 shares of stock, you could look out to May and you can sell one of the May $140 Call at about $2.40 and you can use the proceeds to buy one of the May $115 Put for about $2.40 and what you have done there is you have created a collar. Your stock would have gained between $127.50 upto $140, you will be called away above that, but you also have protection below $115 and you would do this trade if you think that there is a potential for a massive move to the downside over the next few months because of all these catalysts don’t pan out,” Nathan said.
But when can one decide whether to go for options play or stock replacement strategy. Khouw said that as far as Apple Inc. (NASDAQ:AAPL) is concerned, since the option premium are higher, it is always better to go with a trade that Nathan has pointed out. He said that people who are holding on to Apple Inc. (NASDAQ:AAPL) stock can do some trade like this and get some protection on the downside.
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