Possible Apple Drop

AAPL has reached an area where there's a confluence of possible sources of resistance on the hourly chart. Price could easily blow right through this level, come back down and retest it, then take off to the upside. But there are so many independent sources of resistance, you got to make some attempt to trade it.

Because AAPL could ignore the resistance levels or react to news over the weekend (today is Friday), we want to just tip toe in with a small position, just in case we get a nice gap down with continuation on Monday. If price makes a nice sustained move in our favor then we can scale in for a bigger position.

The top chart above is the 60 minute chart, where we see the confluence of resistance. The next chart is a blow up of the 60 minute chart showing the area around the closing price. You can see the 2 Fibonacci retracements, the Trend Line, the D point of the AB=CD, and the 50sma just under the closing price.

Here are the different sources of potential resistance:

• Trend Line Resistance
• 61.8% Resistance green range
• 38.2% Resistance yellow range
• AB=CD D point Resistance
• Extreme overbought Stochastics
• Possible 50sma Resistance
• Possible Resistance from previous support
• Possible attraction to an unfilled gap

Very close to today's close, we got a June 125 Put for $2.87. The stock was 127.62 at the time.

The Target is where the -27.2% green Fibonacci Extension level meets the lower Trend Line at about 119.79.

Max risk is the cost of the option, $287. The option had a Delta of 40% and a Gamma of .04. So the Delta at the target would be approximately .40 + .04 * (127.62 - 119.79) = .71. For purposes of estimating the option value at the target, not considering the Theta loss, we'll just use the average Delta from entry to the target, which would be (40% + 71%) / 2 = 56%.

Using the average Delta, the reward at the target would be .56 * (127.62 - 119.79) * 100 shares = $438.

Now we can calculate the Reward:Risk ratio: 438/287 = 1.5:1, not great but acceptable.