$AAPL Releases Trump Hand Sized iPhone

by Dan March 21, 2016 1:53 pm • Commentary• Trade Ideas

As I write Apple (AAPL) is hosting their iPhone For Trump Sized Hands / iPad / iWatch wristband event. Yes this is really going on.  Expectations were not particularly high on the product front even with the stock’s 15% gains from its February lows.

The next identifiable catalyst for the stock will be their fiscal Q2 earnings event which should come in the last week of April.  Today’s event was a bit of a sideshow as investors are most interested in how and to what degree the company increase their capital return plan in the form of a raised dividend and increased share buybacks. The big problem for AAPL on this front is that almost 90% of their $215 billion in cash is overseas, and the company continues to add debt (currently $62.5 billion) to fund the cash return.

With the stock down about 21% from its all time highs made last April, investors continue to grapple with the stock’s cheap valuation, fortress balance sheet and the lack of expected growth off of last year’s $233 billion revenue base, and the company’s reliance on the iPhone for more two thirds of the company’s sales.

So what’s the trade?

*Trade: AAPL ($105.50) Buy April 15th 105/100/95 put fly for $1
  • Buy to open 1 April 15th 105 put for 2.10
  • Sell to open 2 April 15th 100 put at .65 cents each or 1.30 total
  • Buy to open 1 April 15th 95 put for .20

Break-Even on April 15th expiration:

Profits: up to 4 between 104 and 96 with max gain of 4 at 100

Losses: up to 1 between 104 and 105 & between 95 and 96 with max loss of 1 below 95 and above 105

Rationale: targeting a move in the next three weeks, prior to earnings back towards 100 which by the chart below appears to be an important support level, and just above the $99 average for the 2016. The put fly structure helps mitigate some decay despite options prices being relatively low.

[caption id="attachment_62364" align="aligncenter" width="600"]AAPL 2yr chart from Bloomberg AAPL 2yr chart from Bloomberg[/caption]