Today marks day #31 so far this year without a 1% down day, the 14th-longest streak since 1928.
The low volatility market has been frustrating for most traders. Most options traders tend to take short positions as the rally higher moves further and further into the outliers of the bell curve. We all know there is the inevitable reversion to the mean, particularly when we reach these types of levels.
The tech-heavy Nasdaq 100, more specifically Apple (NASDAQ: AAPL), has led the way. But how long can a company with a $500 billion market cap continue to go parabolic? This advance has sent Apple 35% higher since December 19th.
In my opinion, you have to be crazy to be buying at these levels.
Just look at the chart and tell me which side you would rather be on over the next 30 days.
I typically don’t talk about individual stocks, but I think Apple deserves a mention at these levels.
The push today towards the end of the day left the stock trading up to almost $510 with an RSI (5) of over 97 and a RSI (2) over 99.6.
Could now be the perfect time to add a bear call spread?
I’m talking about a defined risk trade, selling the 545/550 vertical spread (bear call spread) that could bring in $80 of credit for each contract traded with a probability of success of roughly 80%. The return 19%.
Not bad for a trade that allows you to be completely wrong in your assumption and still make 19%. As long as Apple stays below 545 through March expiration (31 days) the trade is a success. In other words, if you believe it’s unlikely that Apple will climb an additional 10% in the next month, this trade might be right for you.
As always, position-sizing is key, so trade small and trade often.