Apple swing trades

I usually trade options, sell them – never buy. But current market conditions are not the best for an option seller for a couple of reasons (listed below). Thus my usual strategy of selling options isn’t feasible so I’ve been using swinging trades (briefly discussed in a previous post).

Reason 1 = VIX @ or near all time lows.   This is great for buyers of options since the option premium is cheap and one can purchase options for speculation or as hedging their current positions.

But for option sellers, the option premium currently available is not great and great risk/reward opportunities are hard to come by.  I never force a trade, so right now all we can do is observe price action and look for signs for market direction.

Reason 2 = Lack of clear market direction.  S&P 500 made an intraday high of 1475ish in September.  Right now S&P is at 1410.   Earlier this month, it traded down below 1360.   With the looming “fiscal cliff” on the horizon, it’s not clear what the short term and medium term market direction currently is.  It’s not a good idea to open up new positions as an option seller without a decent idea of market direction be it the upside or downside.

In my previous post I mentioned a short term trading strategy on AAPL called swing trading.  In this strategy I focus on a few criteria:

1.  A stock I would like to own for the future.

2.  A stock that displays great fundamentals for the current fiscal year and its forward PE (“price to earnings”) is trading below the current market’s (S&P 500′s).

3.  Well defined resistance and support established for the stock, at least in the short term.

Over the last two weeks one stock met this criteria:  Apple (AAPL)

1. I would love to own AAPL in the short term/mid term/long term or any term!

2. The trailing PE is around 13 and forward PE is around 10 (that’s dirt cheap!).  This does not account for the $125+ billion in cash Apple has on hand.  S&P 500′s trailing PE is currently at 14.  So AAPL is trading, fundamentally, at a discount than the overall general market.

3.  As I mentioned in my previous post, AAPL has now defined resistance and support areas.   Its resistance is around $594-$596 and strong support around $505.

The figure below shows the trades I made on AAPL.

Image

Using the reasoning I’ve discussed above, I made two quick swing trades on AAPL in one of my IRA accounts. I will try to enter AAPL again around $580 tomorrow and try to sell it around $594 again if it cannot break through resistance.

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