Trade Alert – Double Up (AAPL), February 16, 2012

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Trade Alert-Double up the Apple Call Spread position

Buy the Apple (AAPL) March, 2012 $430-$460 call spread for a net cost of $27.00 or best

Opening Trade

2-16-2012

expiration date: 3-17-2012

Portfolio weighting: an additional 10% when in the money, on top of the original 10% put on two hours ago.

($10,000/100/$26.75) = 4 Contracts

To execute this trade you must open two positions simultaneously:

1) Buy The (AAPL) March, 2012 $430 calls at $75.00

2) Sell Short the (AAPL) March, 2012 $460 call at $48.00

The maximum profit occurs with Apple stock anywhere over $460 on March 17, 2012. Let’s assume that at expiration, Apple is at $460. Then the profit is:

Today:

March $430 call cost………………. $75.00
March $460 call premium earned…-$48.00

Initial net cost………………………. $27.00

At Expiration

March $430 call …..………………. . $60.00
March $460 call ……………………-$30.00

Net Profit…………………………….$3.00

($3.00 X 100 X 4) = $1,200, or 1.20% for a $100,000 model portfolio

I am going to double up on the Apple call spread that I put on two hours ago. There is no doubting that the trifecta of positive economic data broke the downside momentum in risk assets for the time being. The 13,000 drop in jobless claims to a new four year low, my favorite leading economic indicator, was particularly impressive. This way, if the market goes up, so will Apple, and this should offset any losses we have on (BAC) and (SDS). This is the “hedge” in hedge funds. This is how we earn our pay. Hopefully, all of these positions will be win-wins. I just turned the trading book into a “long Apple/short Bank of America” one. Let’s see what happens. This gives me the room to lower my stop loss on (SDS) to $15.50, which I will be posting in tonight’s spreadsheet.

If Apple stock does keep falling, I will end up owning the shares at a net cost of $463. At that point I will be convinced that I have died and gone to heaven, picking up the shares at an adjusted PE multiple of 8, a 43% discount to the main market multiple of 14.