Apple (NASDAQ:) has had quite a run, punching through the important $500 level on Monday. Shares are now up nearly 25% year-to-date, with the stock also being up eight straight days through Feb. 14. (Shares closed below $500 yesterday.)
Short-term sentiment readings are off the chart, with the 14-day RSI (relative strength index) over 87. The stock is finally starting to lose a little momentum, with 12-day ROC (price rate of change) starting to curl downward.
From a contrarian perspective, this stock is certainly over-loved here in the short term. While I don’t anticipate AAPL to fall sharply, or even fall much at all, I do look for the momentum to fade and some profit-taking to ensue.
Past post-earnings run-ups have usually displayed a similar pattern, moving up sharply until an area of value is found, followed by sideways trading for a few months. I expect AAPL to follow a similar pattern now, with the stock remaining virtually unchanged around the $505 level by March options expiration. And there are a number of ways to profit from this sideways action in the options markets.
Based on AAPL’s current market price of $497 and using a target price of $505, a target date of March 16, 2012, and $10,000 of investment capital, you can capture some nice gains by selling a call spread, buying a put spread or using another options strategy that best fits your trading style and goals.
For the full details on this trade, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.
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