This AAPL Calendar Put Spread Can Net 591%

Bearish play with a target stock price of \$185

Strategy has +591% upside potential and 42% undervalued

 Strategy: Long AAPL Calendar Put Spread Sell 15-Dec-23 185 Put 1.23 Buy 29-Dec-23 185 Put 1.79 Debit: \$0.56

Apple has seen its price drop -0.6% today to \$190.23. The price action today indicates stock and market weakness. Setting up this calendar spread with strikes at \$185 gives you a bearish bias to tap into AAPL stock's weakness.

Option Profit Calculator Results for AAPL Calendar Spread at 15-Dec-23 Expiration

In this scenario, the optimal stock price for the option strategy would be \$185.00 on the date of the first expiration, December 15, 2023. This is equal to the strike price of the options in the spread. Since there is notable downward pressure in both the market and AAPL, and the strikes are below the current stock price of \$190.25, the spread is taking advantage of the market's bearish bias. If the stock price is \$185.00 at expiration, we can benefit from the 15-Dec-23 put, which we sold, expiring worthless, and the option that we are long, the 29-Dec-23 put, will still have time premium built in.

Since we do now know what the exact implied volatility will be on December 15, we can use our historical data to make an educated estimate to help us calculate the value of the 29-Dec-23 option. Applying the median historical implied volatility of 28.9 from similar options, the theoretical value of the put is 3.87 at the date of the 15-Dec-23 expiration. Using the above assumptions gives us a potential upside of +591% for this calendar spread.

AAPL Calendar Spread Value vs. Market Price

According to Market Chameleon estimated value, AAPL Calendar Spread is trading at a 42% discount to historical benchmark.

If we use historical data to measure how similar spreads in AAPL were priced in the market, the 4-year average price was 0.97, with a high mark of 1.75 and a low of 0.61.

Currently, the calendar put spread is bid at 0.52 and offered at 0.56. The midpoint of the spread is 0.54.

If we use 0.97 as our historical fair value benchmark, the current market ask price is at a 42% discount, while the current market midpoint represents a 45% discount.

 Current Price Historical Values of Similar Spreads Bid Ask Midpoint Average High Low 0.52 0.56 0.54 0.97 1.75 0.61
Market Chameleon captures daily records of market data to calculate historical benchmarks and generate estimated values.

Takeaway

The AAPL calendar put spread we've identified here can be a good way to play a bearish outlook because the option strategy has a +591% upside potential, is 42% underpriced relative to historical measures, and will benefit from the stock price moving lower to \$185.

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