Anatomy of AAPL Bull Call Spread (1000% return)

On Friday, I spotted an opportunity on Apple (AAPL) and posted the trade on the Forum as well as our Group. The intraday chart clearly revealed Support was coming into AAPL. Bear in mind AAPL had been falling for weeks from a high of 705 to 505, almost 30% drop. At some point, this had to change, so I’ve been watching AAPL charts closely.

The fiscal cliff discussions provided an impetus for the broad market and the AAPL stock was clearly waiting for something like this to arrest its decline. The Charts and Volume analysis clearly gave this signal. See Figure 1 below –

– Around 10:30 am, Volume declined on a down bar. This indicated selling pressure was easing.

– At 11 am volume starts to increase again, but its still a down bar. Buying coming in, but not conclusive yet.

– At 1130 am, on very strong volume, AAPL makes a massive move up.

This was the signal I’ve been waiting for. The question now was – Should we put on a Bull Put or a Bull Call spread ? I usually put credit spreads most of the time because you can play the Probability game, but this time was different. I was convinced AAPL had bottomed out in this cycle, so was confident of a Bull Call spread (debit spread) to maximize profits through increasing Delta. A Bull Put spread has negative Gamma so your profits are getting marginalized as AAPL moves higher.

– The spread was a 530 / 560 Feb series Bull Call spread with 93 days to expiry (very low Theta loss).

– 10 contracts, $30 spread with a risk of $12 and a reward of $18

– Margin required – $12,000

Today, AAPL is up over $26 , and the Bull Call spread is up about $4K. This is already a return of 33% in 3 days (1000% return annualized), but I believe the trade still has room to go. I’m taking profits on 30% of the trade (3 contracts), and letting 7 contracts run. Sure, not all trade entries can be perfect like this – but if you know what to look for, you will become a better trader.

Click on Figure below to see the trade parameters and current status.

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8 thoughts on “Anatomy of AAPL Bull Call Spread (1000% return)

    1. Fassel but pls bear in mind debit spreads are directional trades (means you have to be correct on direction). That’s the one problem with them. Well, any Options strategy has pluses and minuses, you have to be aware of them and use them for specific situations.

  1. I had already put a Bull Put when I saw this post. I must say that the Bull call is better to optimize a strong move which is what happened..Great trade. And the volume analysis is fantastic..

    1. Ken I usually do credit spreads for the most part. But this the charts were screaming a big rebound. With a Bull Call, the reward was 150% whereas with the Bull Put it would have been about 25% at most.

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