Possible Apple Drop - Exit

Sent the following Tweet 9:42am ET:

"Apple #AAPL gapped up and breaking to the upside. Exited our short position with a small profit. Details later."

We opened this morning with gap up right on the resistance level, and started climbing. Today is Thursday, and Thursdays have been trending days for the past few weeks. Experts who follow the Federal Reserve believe they are behind Fed Juice Thursdays.

Everything was just a little too Bullish to stay in this trade. We gave it a chance overnight to reverse back down but Apple preferred to bob on up instead. So I sold the June 125 Put at 9:41am ET for 3.25.

Summary:

Entry: 2.87 5/14/21

Exit: 3.25 5/20/21

Net profit (other than commissions) 325 - 287 = +$38.00 per contract.

Possible Apple Drop - Update 3

Interesting day. We gapped down at the open right at the bottom of the open gap 124.26 - 123.06. That was great, but we spent the day filling in the original gap, then also filled in the rest of the gap we formed  at today's open. In so doing, we watched about $100 of value in our Put option dissipate.

Looking at it on the hourly chart above we see we formed a flag. I was very tempted to take the $150 profit that was left in the trade at the end of the day. But, even though we closed over the 8ema, we're still under the downward angled Trend Line, under the 200sma, 50sma, and 20sma. Since we filled the gaps and we're close to resistance, there's a good probability we'll resume the down trend tomorrow.

However, the past few Thursdays have had strong bullish moves. We could break out to the upside and just keep going. And the bottom of the channel could certainly provide support.

We could also bobble around between the 8ema, upward Trend Line, and the top of the gap providing support, and the downward Trend Line, 50sma, and 20sma overhead providing resistance, until we break out one way or the other.

It was a difficult choice, but we stayed in the position. We'll see what happens tomorrow.

Possible Apple Drop - Update 2

On the 60 minute chart above you can see we got a lower swing high followed by a lower low on significant relative volume. We also bounced off the upper Trend Line and accelerating into the downward channel. We closed under the 8ema and all the moving averages on the chart. Notice how the Bollinger Bands are blossoming outward. That's an indication of continued momentum in the current direction.

All of this is constructive for our short position. If we continue this trend, we'll be well into, or beyond, the open gap 124.26 - 123.06 just below us. At the moment, we're on target and looking good.

Possible Apple Drop - Update 1

We got the drop we expected, but it was quite shallow. And worse, the hourly chart above closed over the 8ema and the ADX crossed to the upside.

On the other hand, we're still under the 50sma, under the Trend Line, stochastics aren't oversold, the 124.26-123.06 gap hasn't been filled, and the up bar was the last hour of the day, which could have been short day traders taking their profit.

Its not the best looking chart to be in a short trade, but its too early to abandon the position.

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.