AAPL Follow Up

I had a good question from a member about AAPL. Yesterday I was talking about AAPL and said I didn't see it as having as much profit potential as a short as some of the other assets like BIDU because AAPL has already discounted quite a bit of downside (-45% drop if you recall from the highs).

The member was wondering why I chose AAPL as a trade over some of these other assets. When I was talking about AAPL's profit potential I was talking about it in the context of a core short position or a longer term trend position, but the trade was using options so it was obviously meant to be a short term trade. At the time, AAPL looked better than say a BIDU for this kind of trade.

This is an excellent question because it deals with the concept of multiple trends all existing at once and THE IMPORTANCE OF MATCHING YOUR TRADES AND THEIR MANAGEMENT TO THE TIMEFRAME YOU ARE TRADING.

For example, as for the Option / Put trade that I just closed in AAPL...

 The 10 min AAPL chart above has a VERY clear negative divegrence and a very strong one as well, there are multiple timeframes, but this is good enough for the example.

This is a clean, near term short set up, because I didn't see it as a long term trend trade I used options as a tool to increase the profit potential, rather than 2.75% profit (AAPL short), it turned out to be a +24% profit.

Now look at the same chart in BIDU...

 The BIDU 10 min chart does not have the same, clean, clear negative divegrence for a short term options trade.

However when we consider longer term trend trades which I want to be setting up and finishing up now, take a look at the two assets again...

 AAPL's 30 min chart is negative, but if you had to chose, would you choose AAPL or...

The VERY clear longer term leading negative on the BIDU 30 min chart?

It's important to match your trades and the types of trades with the signals and timeframes you are trading, BIDU is a much better looking trend short,  but for a very near term, quick trade, AAPL clearly had the edge.

As far as why I decided to take the AAPL gains off the table in the March $535 puts... I could hold the puts through March and probably have a larger gain when all is said and done, but why go through possible draw down when I can just take the gains (not lose any) and then re-enter the same position when it's ready to make a new leg lower? It's a matter of losing the recent profits because of theta at bear minimum.

The 10 min chart shows a VERY clear negative divegrence so it was a good choice for the particular trade, an options position.

 However looking at a 5 min chart to the far right, we see a small positive divegrence forming, I'd think that AAPL is very likely to move sideways for a bit here and probably pop to the upside as I mentioned this morning, but even if it just moves sideways, my AAPL gains will disappear just as a matter of time decay.

The 2 min intraday chart has a relative positive divergence as you can see between 12 pm yesterday and right now, there's was no point in putting those gains at risk when I can simply re-enter the trade after this section has resolved and make the gains a second time.