New Trade – Big $AAPL

by Dan January 13, 2015 1:50 pm • Trade Ideas

Apple (AAPL) reports their fiscal Q1 results on January 27th after the close.  The options market is implying about a 7% move in either direction between now and Jan30th weekly expiration.  The 4 qtr average move has been about 5.5%.  Expectations into the print are as high as I can remember, as analyst expect the highest quarterly earnings increase (about 23% year over year) on 15% sales growth.  At this point if you don’t already know that AAPL is expected to have a blow out Q1 on eye-popping iPhone 6 sales then you must have been under a rock for the last 4 months.

This morning a Johnny Come Lately at Credit Suisse upgraded AAPL shares from a Hold to a Buy raising his price target to $130 (read here). The cruix of the upgrade is what most investors already own the stock for, industry leading margins, upgrade cycle of econsystem, move into wearables, added benefit of services like PAY yada yada yada, oh and increased capital return.  We get all that.

The stock was up more than 3% this morning on the upgrade, but has since given back a good bit of the gains, and is now up only 1%.  On a longer term basis the stock seems to be in a downtrend from the early Dec highs, making a series of lower highs and lower lows:

AAPL 6mth chart from Bloomberg
AAPL 6mth chart from Bloomberg

I have no interest at this moment in placing a trade for the earnings event, but playing for a re-test of last week’s lows near $105 sure seems attractive and the path of least resistance: 

Trade: AAPL ($110.55) Buy to Open Jan23rd weekly 110/105 Put Spread for 1.30

-Buy to open 1 Jan23rd 110 put for 1.90

-Sell to open 1 Jan23rd 105 put at .60

Break-even on Jan23rd Expiration:

Profits: gains of up to 3.70 below 108.70 with max gain at or below 105

Losses: losses of up to 1.30 above 108.70 with total loss of 1.30 above 110

Rationale: This is a very short term bet on a stock that seems to be having trouble getting to new highs. I think a pullback towards the 105/106 area is a definite possibility if that truly was a failure at its 50 day moving average this morning. This is either going to work right away or not because we have a few market moving headlines over the next few days. We’ll keep a tight leash on it to the upside as it expires before the earnings event.