My AAPL naked put was the only option I had set to expire in February and the timing of AAPL’s move higher worked out well for me. AAPL fell as low as $150.29 intraday on February 9. I thought I had a strong probability of having the option assigned, but the iPhone maker recovered even faster than it fell, at least from $170 to $150 and back. After news hit of Warren Buffet’s increased stake in AAPL, the shares gapped higher today. I was watching when the market opened today (advantage of doing this for a living) and was able to react to AAPL’s price jump while it was still close to the lows of the day. While AAPL was trading at $169.52, I bought to close one AAPL February $165 naked put for $0.17 and at the same time sold one AAPL April $165 naked put for $4.07. I received $388.75 after paying $1.25 in commission for the calendar spread.

I could’ve let the February put expire worthless, but removing the risk was worth $17.62 for me. AAPL closed at $167.38 yesterday and looked like it could easily fall back to $162.50 without breaking its upward trend. Luckily for me, the Buffet news came out today and pushed the stock higher, so I could exit my February put with a realized gain of $317.01. I considered raising my strike to $170 ($167.50 isn’t available for March or April yet), but didn’t want to sell in the money just after the stock gapped higher. As I’ve mentioned before, stocks and indexes often “fill the gap” before continuing their trend higher. In other words, I wouldn’t be surprised to see AAPL retest the $167.38 range before it makes a run towards new all-time highs again.

AAPL is in no-man’s land with trend lines after the fast correction over the past few weeks. It might not be until the $180 range (AAPL’s previous high was $180.09) before a trend can be tested. On the other hand, the moving averages could give some support if AAPL weakens again soon. Today’s gap higher pulled AAPL above its 50-day moving average after passing its 200, 100, 20, and 10-day moving averages earlier this week. The 20-day fell below the 100-day moving average yesterday, but should pull above it again within days if AAPL’ price remains elevated. A dip to retest this crossover would only bring the stock down to $167.50-ish. Well above my cost per share of $160.94 if the April $165 option is assigned.

AAPL can fall 5.06% before I lose any money and if it drops no more than 2.67% and stays above my strike, I’ll earn a 2.53% return, 13.97% annualized. While the chart is harder to love, I still like the fundamentals to support this trade decision. I’m finishing writing this update near the end of trading today and AAPL is up to $172.79, +$5.41 on the day. At this price, AAPL’s forward P/E ratio is 13.09. They can miss earnings estimates and still shouldn’t get derailed at this valuation. Of course, all stocks could take another hit and bring AAPL down again, but I see that as a buying opportunity unless something else fundamentally changes.

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