All sales of the Apple Watch have been blocked in the country of Switzerland due to apparent patent violations. A patent was filed in 1985 for the word “Apple” on a watch, this is what Apple Inc. is supposedly in violation of. Apparently the Swiss watch industry is not very excited about the idea of high end wearable tech. Aside from this issue, which will likely be resolved come launch time, optimism over the release of the Apple Watch has been somewhat hard to come by. Citi has released new research showing that the majority of runners that currently use wearable tech would not consider switching to the Apple Watch.
So if the release of the Apple Watch is representing a big point of uncertainty and risk how can a trader play it with options. As always a trader is actually able to lower their overall risk exposure using options over the underlying stock. This is true for both long and short setups so let’s examine two different trades in AAPL using options.
Apple Inc. (AAPL) is currently trading around $127.00 in a 52 week range of $73.05-$133.60. The stock has been very strong this year with shares rallying more than 15% year to date on the back of record breaking iPhone sales numbers. With stock near all-time highs investors are now looking to the watch for the next leg of growth. So how can a trader get long AAPL using options while also lowering their risk?
Let’s look at a long stock replacement strategy:
Trade: Buying the Jan 2016 110 Calls for $21.50
Risk: $2150 per 1 lot
This trade gives a trader exposure to AAPL through January expiration and has a breakeven just above the stock’s current price, but what is a trader wanted to get short? A trader can use a similar concept to run a short stock replacement strategy. This allows a trader to get short AAPL without the unlimited risk associated with naked short stock.
Trade: Buying the AAPL Jan 2016 150 Puts for $28.00
Risk: $28 per 1 lot
This trade has a lower breakeven point that outright short stock but has a defined level of risk and gets a trader short through the end of the year.