So here's where things stand with our positions in Apple and the market right now. Fist, with Apple, the reason we are remaining long half of the March spread at this time, despite the fact that Apple is showing signs of a near-term top is that the momentum is so strong that we want to hedge against any upside breakout. Right now the March 100/110 spread is trading at a $8.35 which is so far a +67% gain from our $5 entry. So notice that every day AAPL continues to trade above $110 it will simply increase in value. Like AAPL could do absolutely nothing and move sideways and that spread will just continue to appreciate. Yet we sold half because we have to consider the possibility that AAPL could potentially stall or rollover a bit from here. Like it's in the realm of possibility based on historical technical president. That, and our larger goal is to get into a spread that has more upside in the tank.
Yet consider this, Apple is sitting only $1.68 below its highs! That's it. That's a single trading session. Apple could be at its highs in one day. Second, today's max pain was at $115. There was a tremendous amount of open interest sitting at the $115 call and put level. So it's to be expected that Apple wouldn't trade at levels significantly above or below $115 today. The fact that Apple is sitting here at $116 could indicate that it was being held back and that next week we see a continuation of the rally. Third, Apple is close to overbought territory on the daily but not quite there. In my experience, when Apple gets close to overbought territory, it usually gets there. Fourth, we are sitting on half of our AAPL allocated cash which I think is good enough. We can capitalize on any pull-back and continue to enjoy whatever possible gains happen on the upside.
Here's yet another view that demonstrates the likely hood of a struggle when AAPL gets overbought on the daily RSI. Again, it doesn't mean a guaranteed pullback, but it's usually the zone where buying pressure cools off.
But most importantly, Apple is clearly out of the woods now in terms of the correction. It's obvious the market believes Apple deserves to trade north of $110 and that the bear market is really actually over now. Think about it. Apple has now been trading above $110 for essentially three months. This isn't a situation where Apple rallied back in a bear market environment, topped and then sold-off. If Apple were trading in the low $100's right now, it would be a different story. But here we are in late December and Apple is trading with $1.60 of its highs set going into Q4 earnings. So for now we're just going to remain half long on the March spread. If Apple pulls back, we may dollar cost average our position back into the March 100/110 call spread, OR all together look at the July spread which has more upside value that can be milked. As we mentioned, the July spread will also withstand the onset of any shenanigans in the event that AAPL goes through another correction....the July spread will lose far less value than if we were to hold onto the March spread.
Now with the SPY, I think it's clear that once this pull-back ends, the SPY is going to rally to new highs. It is sitting today back down near a 50-RSI on the hourly. So the SPY doesn't have much in terms of downside to go anyways. If the SPY sells off down to a 30-RSI on the hourly, it's only going to set the SPY up for another sharp rally.
Thus, the strategy for now is just for us to stay put.