How one trader plans to triple his money in Apple

Apple has fallen 5 percent from its recent high, and one trader expects more volatility from the stock when it reports earnings Tuesday afternoon.

The options market is currently implying a 3 percent move for the stock in either direction by Friday's close. But given last week's sell-off in tech and the sector's failure to regain those losses on Monday, Todd Gordon of TradingAnalysis.com said Apple, which has recently "settled in around a $150 range," will likely stay within that consolidation even after reporting earnings.

"I see the market, as well as Apple, falling into a little bit of a range here," said Gordon Monday on CNBC's"Trading Nation." "Technology has lost its uptrend and is falling into a sort of sideways range, and I think we can use this to our advantage heading into earnings."

To play this range to his advantage, Gordon suggested using a put butterfly trade structure. This involves selling two option contracts at a middle strike price while buying one contract at a higher strike price, and the other at a lower strike. The goal is for the stock to hit that middle strike.

Specifically, Gordon bought the August 4 weekly 145/150/155 put fly for $1.34. Since each option accounts for 100 shares of stock, the most Gordon can lose on this trade is that $134. If Apple closes at $150, the middle strike price, on August 4 expiration, then Gordon would make about $370 on the trade, for a return of three times his money.

Apple is up 28 percent year to date but has failed to make meaningful gains since early May.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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