Trade Summary: September 8, 2014

September 8, 2014

 

 Trade Rationale

One of the biggest retail events in the world happens tomorrow with the unveiling of Apple’s (AAPL) new products. Traditionally, Apple releases new iPhones, iPads, and other products in the Fall, ahead of the holiday season. This year, the largest retailer in the world could be launching three brand new products (which will go on sale at the end of the month).

According to analysts, Apple is expected to launch two new iPhone 6 models, a bigger and smaller version. These new models could have the new sapphire glass technology as well as new mobile payment capabilities.

Moreover, Apple is set to unveil its new smartwatch, the iWatch. The new watch will likely have robust health monitoring features. Plus, it could also have mobile payment technology.

So, how can we trade tomorrow’s event with so many investors already placing bets on their expectations?

For one, we can trade Apple’s suppliers. Investors may be quick to buy Apple stock ahead of the conference, but the suppliers may still have room to run. On the other hand, we can also take the opposite position. That is, we can bet on AAPL’s downside in case investors react in a “sell on the news” kind of way.

For the suppliers, let’s buy calls on GT Advanced Technologies (GTAT) and Avago Technologies (AVGO). GTAT makes the sapphire glass which Apple will be using on some or all of its new devices. AVGO is an analog semiconductor company who is supplying components to Apple as well.

Finally, we’re going to buy puts straight up on Apple. If the new products don’t impress, the stock could go down in a hurry. What’s more, expectations could be fully built into the stock. So, once the anticipation is over, the recent buying frenzy in AAPL could reverse.

Between these three trades, we’re doing a pretty good job of covering both positive and negative outcomes. And keep in mind, this could be a case where all three trades work out. Plus, we’re buying plenty of time on each of the options.

Keep reading for the details of each trade.

 

Trade Details

#1) Buy GT Advanced Technologies (GTAT) December 19 Calls up to $2.30

We’re looking for a higher move in GTAT. Our first profit point for conservative traders is at $20. For aggressive traders, you can hold up to $22. For risk control, the conservative exit level is $16. $14 is the final exit level for aggressive traders.

#2) Buy Avago Technologies (AVGO) January 97.50 Calls up to $2.60

Like GTAT, we want AVGO to go higher. Our first exit point for conservative traders is at $95. For aggressive traders, you can hold to $100. For risk control, the conservative exit level is $80. And, $75 is the final exit level for aggressive traders.

#3) Buy Apple (AAPL) November 90 Puts up to $2.15

Finally, we’re looking for a lower move in AAPL. Our first profit-taking exit point for conservative traders is at $90. For aggressive traders, you can hold down to $85. For risk control, the conservative exit level is $105. $110 is the final exit point for aggressive traders.

 

Category: AOA Trade Summary