Apple shares have cooled after hitting a record high of $156.65 on Monday, but chart-minded trader Todd Gordon of TradingAnalysis.com sees more gains ahead for the world’s largest public company.
“We have a very nice uptrend going on in the Apple chart,” Gordon said Thursday on CNBC’s “Trading Nation.”
“We have a nice little pullback here it can compare against — a nice little $4 drop, give or take — and we’re seeing a similar $4 to $5 drop here in Apple,” he said.
Specifically, Gordon is referring to a modest pullback in the stock from early to mid-April, in which Apple shares dipped from about $144 per share to about $140 per share. Since mid-April, Apple has come back, rallying more than 7 percent to its current levels.
To capitalize on a move higher, Todd is putting on a trade known as a short put spread. He is selling the 152.5-strike put expiring on May 26, while hedging his exposure by buying the 150-strike put expiring on the same date.
This trade will offer him a credit of 91 cents per share, or $91 per options spread. So long as Apple stays above $152.50 — which is just about where it closed on Thursday — Gordon will get to keep all of that money. If Apple closes below $151.59 on May 26, the trade will begin to show losses. And if Apple closes at or below $150, the trader will see his maximum loss of $1.59.
While the trade technically has an unfavorable risk-to-reward setup, this structure allows for a “margin for error” that will allow him to profit as long as the stock at least stays flat.
Gordon added that since options prices on Apple are at elevated levels, selling options, rather than buying them, is a superior way to express one’s thesis.
To be sure, dips in Apple are rare this year, but have been quite frequent in past years. The stock dipped more than 11 percent from mid-October to mid-November last year and the shares declined for the full year in 2015. But in both cases, the stock eventually rebounded to new highs.