Published On: Fri, Feb 24th, 2017

A put strategy for overbought Apple — #SaxoStrats

InstaForex

By Patrice Hernault

Background

After a nice ride 114.76/113.37 Apple is now overbought.

Let’s play a small retracement of the market (38.2% of retracement of 114.76/137.37) in buying the Mar17 135/130 Put Spread. 

Source: Saxo Bank

Management and risk description

Parameters

Entry: Buy the Mar17 135/130 Put Spread at $ 1.28

=>Buy the Mar17 135 Put at $ 1.72

& Sell the Mar17 130 Put at $ 0.44

Maximum profit is limited

Maximum profit at expiry achieved when underlying =< short strike price

At expiry maximum profit = long strike price minus short strike price minus premium paid

= $ 135 – $ 130 – $ 1.28

= $ 3.72

Return on Investment if the market closes at $ 130 or lower at expiry

= Profit/premium X 100

= $ 3.72/$ 1.28

= 290.06%

Maximum loss is limited to premium paid

Maximum loss is $ 1.28 or $ 128 per Put Spread

Break even point at expiry

= Long strike – premium paid

= $ 135 – $ 1.28

= $ 133.72

Stop: At 50% of the premium

Target: 130 or lower

Time horizon: 22 days

— Edited by Jack Davies

Non-independent investment research disclaimer applies. Read more
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