I’m tracking two bullish spreads acquired yesterday by subscribers while AAPL was in the throes of yet another hysterical short squeeze.  The spreads were suggested as follows: 1) buy the June 21 655/660/665 butterfly 32 times for 0.20 or less; and/or, 2) buy the June 6 657.5/660/662.5 butterfly 100 times for 0.03 or less. Those who reported doing the spread evidently did not follow my price guideline, instead paying, respectively, 0.25 and 0.08 for the positions.  The difference may not seem like much, but it’s enough to reduce our edge considerably. Even so, I’m optimistic that the positions will still make money. The trade was based on a rally target at 660.26 that I had proffered earlier. The stock’s manic spree on Thursday brought it $13 close to the target, making it look less like a longshot. Two days earlier, we had risked small change shorting an ostensibly significant target at 623. It was derived from a long-term pattern on the weekly chart, but when it was easily brushed aside, that argued for getting long rather than short.

Butterfly spreads offer a relatively cheap and low-risk way to bet on directional moves.  In this case, if AAPL rallies an additional 25 points between now and next Friday when the June 6 position expires, the first spread would have a theoretical value of 2.50, or about 30 times what we paid for it. Thus, 10 spreads purchased for $80 (plus commissions) could be exited for as much as $2500. We are not likely to realize that maximum value, however, since the options that we are short in this butterfly– the June 6 660 calls — cannot be covered for zero, even if the stock is trading at or just below the 660 strike five minutes before they expire.  The second position, which has three more weeks to play out, involved an initial outlay of $800 for 32 spreads. It will have a maximum value of $16,000 at expiration, meaning we are getting 20-1 odds that AAPL will NOT rally $25 over the next 21 days.  Actually, the stock need rally only rise by another $20 to push our spread into-the-money, if not to its point of maximum profitability.

Keep in mind that we could have gotten much better odds if subscribers had adhered to my price limit.  Originally we had set out to leg into the second butterfly spread for a zero debit, meaning no loss would have been possible and that our maximum potential gain would still have been $16,000.  That would have taken hard work and perfect timing however. In the end, we opted for the easier path, bidding for the spread rather than trying to leg into it one side at a time. Getting odds of 30-to-1 AGAINST continuing strength in Apple seems like a pretty good bet to me.  Would you lay 30-1 against such an outcome yourself? If not, you are implicitly open to the prospect of taking the side of the bet that we took.  Trading note:  For now, offer half of your spreads for twice what you paid for them. My guesstimate is that it will take a rally of about 12-15 points between now and Tuesday to get filled. If successful, the risk of the remaining position will be zero.  ______ UPDATE (10:57 a.m. ET): With AAPL up $6 this morning, the June 6 spread is salable for twice the worst price (0.08) reported being paid by a subscriber.  I’ll wait for confirmation in the chat room before I officially ‘score’ it.  The June 21 spread is fluctuating between 0.10 and 0.60, implying the stock will have to rise perhaps $4-$6 more to get the closing order on half the spreads filled. _______ UPDATE (Sunday night): Before Apple gave up all of Friday’s substantial gains and then some, the June 6 spread was coverable at the price suggested, although not the other spread.  Any fills to report?  If not, let the order stand.