A lot has been happening in and around the tech giant, Apple Inc. (NASDAQ:AAPL), which has led investors like Jon Najarian to profit from the stock’s roller coaster ride. In an article on TheStreet Jon Najarian explained how he doubled his money using a Put Options strategy.
Put Options are a bet that the price of the stock will fall by the maturity date of the option. Hence, it is essential for an investor in put options to perceive that the bad news, related to the company of interest, is going to outweigh the good news, if there is any. Jon Najarian had a similar view about Apple Inc. (NASDAQ:AAPL). He saw the stock price succumbing to the recent mishaps in terms of an operating system update gone wrong and a bendable chassis that was supposed to be sturdy.
Since Najarian established that Apple Inc. (NASDAQ:AAPL) will likely decline in the near future, he set out to formulate a put option strategy. Moreover, he used his investing acumen to come to the conclusion that Apple Inc. (NASDAQ:AAPL) will not fall below $95. Hence, he bought $100 put options on Apple Inc. (NASDAQ:AAPL) with maturity in October for $1.4, and partly financed his position by selling $95 puts, having the same maturity date, for $0.4.
The spread, or the net amount that was invested for this position, thus equalled $1. To Najarian’s surprise, the strategy paid off rather quickly than he expected. He mentioned in the article that Apple Inc. (NASDAQ:AAPL)’s shares took a slide from about $103 to $97.72 withing the next 24 hours from the time that he set his options position.
In case the underlying stock takes a dip, put options become more expensive and those that are in the money, $100 puts in this case. became more expensive than those out of the money, in this case $95 puts. This widened the spread for Najarian’s position on Apple Inc. (NASDAQ:AAPL) puts to $2, hence doubling his money
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