Since 2005, Apple shares have rallied an average of 12 percent in the three months following its Worldwide Developers Conference. But rather than play for a rally, some savvy traders are looking to make money if Apple shares do nothing in the weeks ahead.
Shares of the world's largest company are up 16 percent year to date and Apple's market cap is now more than $735 billion. But for the past three months, the stock has mostly traded in a well-defined range between $125 and $135.
"I expect [WWDC] to be a real snoozer and that's why I actually think it presents itself as a good opportunity to add some yield against your long position," Dan Nathan, co-founder of RiskReversal.com, said Friday on "Options Action."
Specifically, Nathan is looking to do what is called selling a strangle. The strategy involves selling both an out-of-the-money put and an out-of-the-money call of the same expiration. The goal of the trade is to have the stock stay between those strikes and have those options expire worthless. In exchange for selling those options, the holder could be forced to either exit or add to his or her position, depending on if Apple goes up or down.
Nathan suggests selling the 135-strike call for $1.50 each and at the same time sell a 125-strike put for $2 each, taking a total of $3.50.
This strategy is profitable if the stock trades between $129 and $138.50 until mid-July and is protected above $121.50. Apple shares opened at $128.94 on Monday.
Nathan maintains that even if the stock falls 3 percent, this strategy may give traders a way to buy Apple's stock at lower prices.
"That is an added 2.7 percent yield over the next five to six weeks if you can pull it off," Nathan said. "It also gives you a little protection to the downside if the stock goes down. And in the worst-case scenario, if the stock is below $125, you will be put more stock. ... Then you would take that $3.50 and [use it for an] effective purchase rate of $121.50."
Options expert Mike Khouw likes the strategy as well and says that Apple's large share buyback serves as insulation against the stock falling further down.
"By selling this [strangle], the upside breakeven is now substantially higher," he adds. "The chances that it's going to get above that level, that's a $50 billion increase in valuation. That would really be substantial."