AAPL’s chart suddenly doesn’t look that great. We highlighted what looked like a downtrend in the stock since the December highs last week and expressed that idea with a near term put spread that looked for a continuation of that decline but with an expiration before the earnings release date on 1/27 as we don’t want to make a play on the event quite yet:
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
Now with the stock near 106 the structure is worth more than a double. We’re going to take the money and run and have a closer look at structures that capture earnings:
ACTION – Sold to close the AAPL (106.30) Jan23rd weekly 110/105 Put Spread at $2.80 for a 1.50 profit
– sold to close 1 Jan23rd 110 put at 4.30
– bought to close 1 Jan23rd 105 put for 1.50
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original post:
New Trade – Big $AAPL
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:
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.