Apple’s (AAPL, $93.11, up $2.36) CEO Steve Jobs spoke about his health this morning and the stock has rebounded sharply. The stock was lower in pre-market trading but turned positive when he responded to the market’s worries about his health. Unfortunately, stocks do trade on the health of a company’s CEO because people wonder if they will still be able to do the job.

Mr. Jobs put many of the rumors to rest even the “stories of me on my deathbed” when he said he was fine and that he would continue to run the company while he takes treatment for a “hormone imbalance.” The market took the message as a relief and Apple has opened higher this morning.

The news comes a day before the annual Macworld show opens in San Francisco. Apple’s stock had been drifting lower since last month’s announcement that Jobs wouldn’t be attending the event. The stock fell from $100 to the mid $80’s where it found support.

Today’s news was crucial in the stock’s next direction because the company has a lot riding on Jobs and the Macworld show. Apple’s marketing chief Phil Schiller, not Jobs, will deliver the keynote address but that has been known for quite some time. There is talk of an iPhone “mini” but Apple needs to announce a price cut for its laptops to keep the momentum in its stock price going.

Look for a continued rally throughout the day but I wouldn’t be surprised to see the air come out of the balloon if Wall Street doesn’t like the news out of Macworld. The January 95 calls (QAAAS, $3.10, up $0.90) have opened strong and could make a run to $4 or $5. I would make this a one or two day trade only and if the stock starts to fade by the end of the day, make it a one day trade.

Rick Rouse
Rick@OptionsMentoring.com

Apple (AAPL, $88.90, down $1.22) is trending lower this morning after a price target cut on its shares. Credit Suisse reduced their target for Apple to $120 from $135 as it sees weakening demand for the PC market. They maintained an “Outperform” rating on the stock.

I’m a huge Apple fan but I play the stock both ways. When Apple was making new all-time highs, we were going long by buying call options. When Apple begun to break down, we purchased put options. Over the past few months Apple has been stuck in a mini-trading range of $90-$100 with an occasional run to $110.

Where the stock goes from here depends on a few variables. To start, if PC demand is falling, Apple may have to cut prices to move Macs. That may help sales but their gross margins would take a hit. I’m sure iPod and iPhone sales are going to be “OK” but I don’t think they will be as robust as past quarters.

Wall Street is preparing for a weak holiday sales season, and Apple could suffer if that’s the case. The other factor to the equation is that Apple has no plans to release any new products for the biggest shopping season of the year which could weigh on the stock.

I don’t like betting against Apple but the stock has fallen below its 20, 50, and 100-day moving averages and could test its 52-week low of $85.00. Short-term traders are targeting the November 85 puts (QAAWQ, $3.15, up $0.35) and the November 80 puts (QAAWP, $1.73, up $0.17) which expire next Friday.

I feel safer playing the December 80 puts (QAAXP, $5.10, up $0.20) because it gives us more time for a breakdown but the November puts will give you more bang for your buck. Remember though, the November puts are like a double-edge sword. If Apple bounces back and reverses course, you could lose a significant amount of capital.

If you use the December puts, place a 25% stop loss from your entry price and target a 50% return or better. If you are doing the November puts, do a 50% stop loss on your entry and target 50%-100% gains.

Rick Rouse
Rick@OptionsMentoring.com