Name That Trade: $AAPL Picking

by Dan April 30, 2015 1:29 pm • Commentary

Please take a peek at the conversation I am having with Guy Adami, Tim Seymour, Eric JacksonMike Khouw, Brian Kelly and CC Lagator on Apple (AAPL) on our new site The Ticker District.

I’m expanding my portion of the conversation (below) for RiskReversal readers:


Shares of AAPL are now down about 6% from the highs made on Tuesday following their blowout fiscal Q2 results.  I am not going to get into the why, you know why, its really simple, into the print, positive sentiment got just a bit too frothy for a report where the expected results were fairly well known (iPhone sales, China growth, Watch commentary, capital return boost).  Investors got exactly what they expected, so what’s left to do aside from take profits as the company is likely to be going into a period of months, if not quarters where product announcements (TV and Music services) are incremental, and again expected.  At some point after the company’s World Wide Developers conference in early June, the focus will shift to new iPhones in September, but I expect the S edition of the newly sized up phones will also be incremental.  But I did not start this post to argue fundamentals, they are fantastic, valuation extremely reasonable and the cash return off the charts, but again all expected and I am not sure who the incremental buyer here is at this point.

As for the charts, was Tuesday’s high the mother of all double tops for the largest equity the world has ever seen??

AAPL 6 month chart from Bloomberg
AAPL 6 month chart from Bloomberg

In the very near term I suspect $134 should serve as reasonable technical resistance.

But I would also say that we are likely very close to an epic support level at $120 (red below). Why is it epic you ask? Well simply put, it was the breakout level from February that brought the stock to new all time highs:

AAPL 1yr chart from Bloomberg
AAPL 1yr chart from Bloomberg

While we are not far from the $120 level, a bad break, without a pause would be a massive test for the stock as there is little support until about $112, which corresponds with the stock’s 200 day moving average (purple), and $110 would probably be a no brainier level (to steal the term from AAPL’s 11th largest shareholder Carl Icahn) as I suspect the company has the flexibility to accelerate a portion of their massive $140 billion share buyback authorization.   Simply put, there is a put in the stock at the right level, I am not sure that level is $125.  

At $112, the stock would be down nearly 17% from the all time highs, at which point I suspect the company accelerates a portion of their buyback (which they do from time to time). The buyback will offer support and will continue to be vol dampening, making long premium directional strategies with options attractive only at perceived inflection points or even more attractive options trades that try to be net premium neutral.

So I would be a buyer of dip between $120 and $110, and likely consider Risk Reversals at $120, selling downside put (probably something near the $110 strike) to buy upside call or call spreads (targeting a re-test of Tuesday’s highs).

I don’t think there is any rush at the moment, and a near term oversold condition for the stock would be a great test in my opinion of just how convicted those with massive gains in the stock over the last year really are.