With the upcoming AAPL event, the one thing that is almost certain is that AAPL should have a big move following the event. If the event blows people away, expect shares to break out and have a strong year-end rally. But if the event is as expected or does not offer investors anything exciting, expect shares to sell off, down to previous support levels. The question is, how do you hedge your AAPL position before the event?
Right now, I am in the April ITM calls, but I want to have some protection in case AAPL falls Tuesday. Premiums are sky high, so it does not make sense to me to buy puts because AAPL would have to have a huge move to make money. Instead, I want to sell weekly calls against my position. But I want to do so in such a way so as to not give up much upside. If I were to sell the ATM calls and AAPL were to soar, I would lose out on a lot of gains. So, what I am looking to do is collect around .75-1% of the stock price and sell the $3-4 OTM call. By doing this, I am capping my upside to $3-$4 on the event. This is the perfect risk/reward since I highly doubt that AAPL rallies much more than 3-4%, as history suggests that it moves an average of 3% on these events. At the same time, I collect 1% of the stock price, which acts as my protection.
It is important to have some protection going into high profile events in order to potentially limit your losses if your stock disappoints.