Mike Khouw's Apple Options Trade

On CNBC's "Options Action", Mike Khouw suggested that investors with a long position in Apple Inc. AAPL should consider an options strategy that should help them recover some losses in case of a move higher.

He wants to buy the March 150 call for $7.50 and sell two contracts of the March 160 calls for $3.75 each. The amount collected from the sale of the 160 strike calls is the same as the amount he is paying for the long call position, so he doesn't need any additional capital for the trade.

If the stock rallies to $160, instead of a profit of $11.74 for a long stock position, Khouw is going to make $21.74, because the call spread would be worth $10. Because of two short calls, he is going to have to sell the long stock position in case of such a rally. If the stock trades above $170, the trade is going to start to lose money. Khouw sees a near-term move above $170 as unlikely.