Three weeks ago I wrote an article about how to play the unusual stock action pattern of Apple (AAPL). – Play Apple Volatility With A Unique Weekly Options Strategy
For some unclear reason (most likely options-related, at least to my way of thinking), AAPL tends to fall on Fridays, often quite dramatically, and to move higher on Mondays.
At that time, I suggested that buying at-the-money puts Thursday near the close (or shortly after the open on Friday) would often result in extraordinary gains if you sold the puts near the close on Friday. For the past three weeks, this pattern has continued in spades.
The stock fell on Friday in those three weeks by $19.90, $2.40, and $5.47. Since at at-the-money put with a single day of remaining life would cost about $4, your average gain over these three weeks works out to more than 150% per week. During these three weeks, greater gains were possible by buying the puts before the close on Thursday rather than after the open on Friday (in the prior 12-week test, the stock often opened up a bit higher on Friday, suggesting that might be a better entry point).
The results for Mondays were not as dramatic, but still quite impressive. Of course, buying an at-the-money call either Friday near the close or near the open on Monday would cost closer to $10 because there would be five trading days remaining rather than only one, so the initial cost of the option would be about double the amount required to buy puts in anticipation of the Friday drop.
Over the last three weeks, on Mondays, AAPL has moved higher by $9.04, $.84, and $22.58. Substantial gains would have come your way in two of the three weeks with probably a break-even in the week when the stock budged up only $.84.
Will this Friday-Monday pattern continue? No one knows, for sure. My experience is that trading patterns identified by back-testing do not always hold up going forward. But somehow this one seems different. Until the pattern is broken, at least buying puts near the close on Thursday seems like a good bet. Even if you lose the entire bet on occasion, there have been so many Fridays when the drop has been substantial, over time, the returns could have been extraordinary.
At heart, I am not an option buyer. I prefer collecting decay from selling short-term options (using longer-term options as collateral rather than stock). But for many months now, the daily and weekly fluctuations in AAPL have been considerably higher than the implied volatilities of the options would suggest. As long as this pattern persists, buying AAPL options rather than selling them seems be in order, especially when there us some reason to believe that buying a put or call (rather than a straddle or strangle) gives you an edge. The Friday-Monday phenomenon might just be the edge you need.