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Rotten Apple? - AAPL is Breaking Down and the Options are Still Inexplicably Cheap


APPLE STOCK IS BREAKING DOWN

Apple is trying desperately to prop up its stock... but buying back more than $100 billion worth of shares in the last year and increasing dividends to record levels isn't helping.  After Q1 results that beat estimates, reports of supplier cuts lead investors to dump shares as it signaled iphone demand is crawling to a halt.

Furthermore, the technical pattern is setting up for a good sized breakdown:

Apple is obviously a large component of the technology sector which continues to lag the broader market and is also in a technical breakdown pattern.  If the broader market comes under stress, it could be a bumpy ride down for Apple shares.

Here's a bearish Optimized Positive Convexity trade for AAPL:

The projected return for AAPL to the June 10th expiration is -11.13%
The implied volatility is for the at-the-money put is a staggeringly low 20.4% vs a projected volatility of more than 27%!
This is also the day before a large dividend is to be paid out... the mispricing here is mind blowing!

Maximum risk is ($10,000)
Long 323 shares AAPL at $93.42
Long 25 June 10th $93.5 put options at $2.38
Long 1 June 10th $92 put option at $1.73
Long 29 June 10th $90.5 put options at $1.23

The breakeven price is $89.82 which is less than 2 ATRs from its current price of $93.42
Convexity approaches 30 at 10% price shock.

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