Apple reported fiscal first-quarter earnings last week. Since then, it has settled back into the familiar range between $205 and $235. For this reason, let's consider a double butterfly trade in Apple stock.
Volume has dropped off quite a bit the past four days as intraday volatility continues to rise. So, I am headed back to the butterfly garden with a double butterfly setup.
This trade in Apple stock expires in March. In the current environment, we could see both sides of the butterfly pay out. That would be unusual and potentially quite profitable for the options player.
Apple Stock Today: Long Double Butterfly
A double butterfly is ideal for larger anticipated moves into a catalyst like earnings. This setup is a combination of a long call butterfly and a long put butterfly.
A long call butterfly combines a long call spread and a short call spread that share the same short (center) strike in Apple stock. Similarly, the long put butterfly combines a long put spread and a short put spread that share the same short (center) strike. They are positioned as two separate trades.
The long call butterfly is positioned for upside, as seen in the details below. If price action is outsize, we capture $1,000 in profit less the cost of the call butterfly, currently $65, but only if AAPL moves to 260 by the end of expiration.
- Buy to open 1 AAPL March 21-expiration 250 call
- Sell to open 2 AAPL March 21 260 calls
- Buy to open 1 AAPL March 270 call
Long Put Butterfly Spread
As for the long put butterfly, if price action in Apple stock is outsize, we capture $1,000 less the cost of the put butterfly, currently $72, if prices move to 210 by the end of expiration.
- Buy to open 1 AAPL March 21 220 put
- Sell to open 2 AAPL March 21 210 puts
- Buy to open 1 AAPL March 21 200 put
The long call butterfly holds a current debit of $0.65, based on recent trading, or $65 per set of contracts.
Meanwhile, the long put butterfly holds a current debit of $0.72. Together, the total risk is the debit you have paid for both butterflies, or $1.37. If you have a definitive bias toward one price direction in Apple stock, then you can engage in only one of these option sets.
The total highest potential profit is $10 (the distance between strikes) per share less the cost of the debit incurred by buying both butterflies … $10 – $1.37 = $8.63, or $863. It is extremely rare to collect all this premium. I suggest you target a percentage move rather than an outsize dollar amount. I like to consider 200%-300% profit, but big moves in Apple stock can deliver much higher returns.
Identify Key Chart Levels
The relative resistance zone in Apple stock sits right around 260. The relative support is near 200. The strategy provides three choices to exit the trade. One, sell both butterflies when the performing butterflies moves into target zones, particularly once the middle strike is tested.
Two, sell each butterfly individually when the middle strike of either butterfly is tested, or it hits the profit marker you have chosen. This assumes the potential maximum loss of one of the butterflies if Apple stock never hits the middle strike. Three, sell both butterflies as they collectively approach your loss thresholds.
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Anne-Marie Baiynd is a 25-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." You can find her on X at @AnneMarieTrades and on the IBD platform
