Hi Advanced Traders!
This week, we saw a rally with AAPL. However, looking at its recent lows of $130 to its current $147, I believe that AAPL may take a little breather before climbing any higher. For this reason, I am planning on setting up some bear call spreads this week.
AAPL BCS:
Here is the AAPL BCS trade:
Expiration Date: August 12, 2022
Step 1: Buy 1 $180 strike call option (delta 0.02) for $9.
Step 2: Sell 1 $160 strike call option (delta 0.19) for $126.
Step 3: Set up a buy-stop order of 100 shares for $159 per share.
Credit: $126 - $9 = $117 per bear call spread
The goal is to have AAPL stay below $160 from now until August 12. If it does, both legs will expire worthless and you will be able to keep $117.
If AAPL rallies up to $160, you will buy 100 shares for $159 each, convert your bear call spread into a covered call, and sell your first leg.
Keep in mind that AAPL is expected to report earnings on July 28. If you are worried about the volatility, feel free to sit out of this trade.
📌BCS Notes
By setting up bear call spreads, you are essentially willing to convert your trade into a covered call. You don't initially have to own the 100 shares. However, if the stock rallies, you will want to have the capital ready to cover yourself.
Don't go overboard with the number of bear call spreads you set up. Yes, traders can get greedy when the markets go up. They can also get greedy when the markets go down. Make sure your account is capable of handling the number of contracts you set up.
Remember that you don't necessarily have to wait until expiration to end the trade. You can always lock in your profits if your contracts shrink 50-80% in value. This is what majority of professional traders do.
If you observe the markets start to rally, you don't need to panic. Remember that we want to let the statistics play out and that there is a lot of time from now until expiration for quick drops in the underlying and theta decay to do its job.
For those of you who have been setting up bear call spreads over the past 7 months, you most likely see how powerful this trade is since we just need the stock to not really go anywhere in a short amount of time.
I also want to mention that there will be days where we will have volatile relief rallies. If you plan to set up 20 bear call spreads, you can consider setting up 10 now, and another 10 after a relief rally. Like what I always say, "when in doubt, split it out."
Like always, you can use these numbers as a guide and feel free to tweak the numbers to your own preference and risk-tolerance.
Happy trading!😀
Steve and the Call to Leap Team
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