Powerful ‘Sell’ Signal for Apple

Dear Reader,

On Friday, we looked at a Daily Price Chart of Laredo Petroleum, Inc., noting that the stock’s OBV line is sloping down, validating the stock’s bearish trend.

For today’s Trade of the Day e-letter we will be looking at a monthly chart for Apple, Inc. stock symbol: AAPL.

Before breaking down AAPL’s monthly chart let’s first review what products and services the company offers.

Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services. In addition, the company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.

Now, let’s begin to break down the monthly chart for AAPL stock.

Below is a 10-Month Simple Moving Average chart for Apple, Inc.

Sell AAPL Stock

As the chart shows, in August, the AAPL 1-Month Price, crossed below the 10-Month simple moving average (SMA).

This crossover indicated the selling pressure for AAPL stock exceeded the buying pressure. For this kind of crossover to occur, a stock has to be in a strong bearish downtrend.

Now, as you can see, the 1-Month Price is still below the 10-Month SMA. That means the bearish trend is still in play!

As long as the 1-Month price remains below the 10-Month SMA, the stock is more likely to keep trading at new lows and bearish positions should be initiated.

Our initial price target for AAPL is 115.00 per share.

110.5% Profit Potential for AAPL Option

Now, since AAPL’s 1-Month Price is trading below the 10-Month SMA this means the stock’s bearish decline will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an AAPL put option purchase.

The Put Option Calculator will calculate the profit/loss potential for a put option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat AAPL price to a 12.5% decrease.

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following AAPL option example, we used the 1% Rule to select the AAPL option strike price but out of fairness to our paid option service subscribers we don’t list the strike price used in the profit/loss calculation.

Trade with Higher Accuracy

When you use the 1% Rule to select an AAPL in-the-money option strike price, AAPL stock only has to decrease 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money put option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if AAPL stock is flat at 124.56 at option expiration, it will only result in a 9.2% loss for the AAPL option compared to a 100% loss for an at-the-money or out-of-the-money put option.

Using the 1% Rule to select an option strike price can result in a higher percentage of winning trades compared to at-the-money or out-of-the-money put options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.

The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks.

The prices and returns represented below were calculated based on the current stock and option pricing for AAPL on 1/3/2023 before commissions.

When you purchase a put option, there is virtually no limit on the profit potential of the put if the underlying stock continues to decline in price.

For this specific put option, the calculator analysis below reveals if AAPL stock decreases 5.0% at option expiration to 118.33 (circled), the put option would make 50.7% before commission.

If AAPL stock decreases 10.0% at option expiration to 112.10 (circled), the put option would make 110.5% before commission and would greatly outperform the stock*.

The leverage provided by put options allows you to maximize potential returns on bearish stocks.

The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck’s Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

Get Trade Insights Directly From Chuck

You can start getting market insights directly from 10-Time Trading Champion Chuck Hughes.

See what he’s trading and when with his exclusive Inner Circle Trading Service where he will send you his hand-picked stock and option trades.

Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join or CLICK HERE to schedule a call!

Wishing You the Best in Investing Success,