12:45pm (EST)
The European have just closed and finished in the green as optimism grows over a Greek debt deal. The uncertainty knocked the wind of the bulls’ sails on Tuesday as the major indexes fell 1.5%, on average. The bears were able to penetrate key levels of support but not by much. We often mention how the indexes tend to overshoot support and resistance and yesterday’s pullback still had the major indexes above their 50-day moving averages.
The big news here at home will be Apple’s (AAPL, $535.72, up $5.46) update at 1pm (EST) for the expected iPad3. There is talk that the company might keep the iPad2 around, at a discounted price, to compete with Amazon’s (AMZN, $184.77, up $3.68) toy tablet which hasn’t been much of a threat.
Apple already commands a 75+% market share of the tablet industry and its rivals are splitting the pie in 5% slices.
Of course, there is risk today if the hype doesn’t live up to expectations. The key cool features that Appleholics expect are 4G LTE, a better screen and a faster chip. If 4G is included, expect it to be in the iPhone5 which would be super bullish as the move to high quality on the go continues to explode. Apple could also introduce the iTV but we think that rumor is a little premature.
There are rumors of some type of new touch screen technology so the wow factor could be there to drive Apple past $550 today. If there is a disappointment, then shares could test $500.
We would love to trade the options and we have looked at the Weekly options on Apple but we are on the fence. This is not an official recommendation but let’s look at the picture on what could happen based on a 5% move in the stock.
The Apple March 555 calls (AAPL120309C00555000, $1.45, down $0.05) have traded over 3,000 contracts and have a “breakeven” point at $556.45, technically. The Apple March 515 puts (AAPL120309P00515000, $1.24, down $1.10) are down 50% but could get active on a pullback.
Both of these options together would be considered a strangle option trade and the total cost would be $2.70. This would be a $2,700 investment on 10 calls and puts and here is what would need to happen.
If shares of Apple are at $510 or lower by Friday’s close, the trade would be a double. If shares are at $560 or better, the trade would be a 100% winner. If shares stay in between these ranges then the premiums could get whacked and the options could expire worthless.
We will monitor this trade but we will be sitting on the sidelines with some popcorn watching the action. We think Apple has a few surprises up its sleeve so it should be interesting.
As we head to press, the Dow has reclaimed the 12,800 level and is up 75 points to 12,834 while the S&P 500 is higher by 9 points to 1,352. The Nasdaq is showing a gain of 28 points to 2,938. We have updated our current trades before the show so subscribers, check the Members Area for the updates.