Hardest Decision of All: When to Sell Apple

Would you sell you Apple for $445 bucks?

It’s a scenario that anyone who followed last week’s Options Action might have to confront.

As a protective measure against Apple stock, Dan Nathan of riskreversal.comsuggested using a what’s called a cashless collar. Specifically, he suggested selling the Feb 445-strike call for $5.80 and using that money to buy the Feb 400-strike put for the same amount. The trade protects his stock below $400 but caps his upside at $445. At the time, the stock was trading at $425, and the prospect of a Google-like earnings swoon was fresh in everyone’s mind. Now, however, Apple’s the most valuable company in the world, and as CNBC’s Capital Markets Editor Gary Kaminsky points out, “not owning Apple is like being short the market.”

So what to do now?

The first choice is easy. Stay long the put, says Nathan. “You might as well keep it on. It’s not worth much at this point.”

But the call part of the trade gets tricky.

You could cover it today for about a $9.50 loss. But remember, this is a strategy that is used in conjunction with a long position, so with the stock’s $24 gain since earnings, you’re basically still up $14.50 ($24.00 gain on stock - $9.50 loss on options trade) if close it out now. But if the stock settles in here, and options prices begin to naturally decay, you will be able to buy back that call at a cheaper price than current levels. Ideally, you want the stock to be just below that $445 level by February, at which point the whole package would expire worthless.

So what’s Dan doing?

“If you own the stock and you think there is more upside before February, you may want to cover the call. Remember, these collars should be used tactically, when you are more concerned about downside than upside,” said Nathan.

CORRECTION: An earlier version of this story had a calculation error, this has been fixed and updated.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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