We entered into a put butterfly spread in Apple (AAPL) today ahead of the FOMC meeting. While the Fed is expected to keep rates unchanged, a rate cutting cycle is about to embark. While counter-intuitive, this is historically a more difficult time for markets because the Fed cuts rates to spur on economic activity and as a response to issues within the market. There is no arguing that AAPL is an amazing company. It reports earnings on Thursday and will probably beat on earnings/revenues as usual. However, just as we saw with MSFT, that doesn’t guarantee an upward move in the stock. Current buyers of the stock are much more concerned with future growth, revenues and earnings, not what happened in the last quarter. And that is where the uncertainty lies for the large cap tech space and with the broad markets in general. We like the risk/reward opportunity. The details are as follows:
Buy to open: AAPL Oct 18th (monthly) 220.00 strike put (ratio of 1)
Sell to open: AAPL Oct 18th (monthly) 200.00 strike put (ratio of 2)
Buy to open: AAPL Oct 18th (monthly) 180.00 strike put (ratio of 1)
Debit: 3.84
Max risk = 3.84 or $384.00 per spread
Max reward = 16.16 or $1,616.00 per spread