The weakness in Apple (AAPL, $181.61, down $4.03) continued from the opening bell yesterday and actually got worse as the company was unveiling its latest iPhone. The biggest news by far was that the iPhone 3G will sell for $199 for an 8GB version and $299 for a 16GB version. Apple’s stock tanked nearly $10 just before 2PM and was making a late day recovery before the final bell sounded.
Talk about bells and whistles. The latest iPhone has it all. You got your e-mail, calendar, and contact-list tools, a GPS device and other neat features. It even has a blogging service called TypePad which allows blogging directly from the iPhone. Apple has already sold 6 million iPhones and ran out a few weeks ago. The latest and cheaper version will be available July 11. Count me in.
I mentioned of couple of key strike prices for Apple on Friday. The June 175 puts (APVRO, $3.15, up $0.23) could have been picked up for $2.90 and they traded as high as $6.25 on Monday. You can bet a few people did well holding those puts over the weekend. The stock traded as low as $175.75.
The June 200 calls (APVFT, $0.73, down $1.37) were a disaster for those who were bullish. They closed at $2.10 on Friday and held up well when the market opened. But that was it. The calls never made it back to where they were Friday and traded as high $1.90 before ending the day 70% lower.
To some option traders, it was hard to justify trading either the calls or puts without having protection so a strangle could have been used. The problem with that is that you would have had to watch the stock the entire day and planned your exit points just right to make some decent returns.
If you would have bought one contract of each option contract the cost would have been a $5.00 premium or $500. If you sat back and did nothing Monday then you would have watched your premium fall to $3.88 ($3.15 for the call option and $0.73 for the put option) or $388. You now have a paper loss of 22%.
This is why it is important to understand the risks associated with options and how trading can cost you money if you don’t pay close attention to what is happening.
Rick Rouse
Rick@OptionsMentoring.com