Apple’s $4.6T test: Can Ternus build what comes next?

Apple's stock reached its best performance in five weeks after John Ternus took over as CEO, replacing Tim Cook. The rally pushed Apple's stock away from a support zone near $310 and towards its late-July record high near $340. This situation offered investors a natural way to define their downside and upside using options. To protect their investment, traders employed a strategy called a collar.

To execute a collar, an investor must own 100 shares of Apple stock and simultaneously buy a put option and sell a call option. In this situation, the investor bought a Sept. 18 $310 put and sold a Sept. 18 $340 call. The cost of the $310 put was $2.17 per share, and the $340 call generated $2.12 per share, resulting in a net cost of about $5 per 100 shares for the hedge.

The put provided insurance, protecting the shares from dropping below $310 through Sept. 18. If Apple's stock fell below $310 at expiration, the put gained value dollar for dollar, while the short call covered most of the cost of the protection. However, if the stock rose above $340, the investor would surrender further gains and potentially have to sell their shares at the $340 strike.

The breakeven point for the collar was approximately $324.82 at the Sept. 18 expiration. Below $310, the maximum loss was around $1,482 for the 100-share position, while above $340, the maximum profit was approximately $1,518. Additionally, Apple was scheduled to hold its next major product event on Sept. 9, Ternus' first as CEO, which could provide further catalyst for the stock price.

The collar strategy allowed investors to give up gains above $340, accept potential share callaway, and pay a small upfront cost of $5 for crash protection below $310.