Apple (AAPL) – Release Me

by CC September 2, 2016 3:09 pm • Trade Ideas

On September 7th, Apple is holding an event to reveal the next iteration of their iPhone / iOS software, and possibly the the first update to the Apple Watch since its release in April 2015. Rumors and leaks seem to agree that there won’t be dramatic changes in the design of the phone itself. Expect some more geebees with the 16gb gone as the entry level, replaced by a 32gb phone for the same price. The timing of the bump in memory almost seems like a direct response to some not so subtle advertising Google has been doing throwing shade at Apple on the common complaint with iPhone users of running out of storage just when you want to take a picture. And rumors are that this event may lean very heavy on camera updates (and an additional camera). In fact the invitation (which is normally a cheeky reference to the event’s focus)  is titled “See You on the 7th” and could be a reference to a dual camera on the larger iPhone Plus.

Aside from that there are rumors of the headphone jack on its way out, replaced by wireless earbuds. Don’t expect fireworks though. As far as the watch, rumors point to additions of GPS and a barometer, which are nice additions but the fitness wearable market is crowded and until the entire watch becomes a standalone on most of its features (not needing a phone nearby) it’s unlikely that Apple has a game changer on its hands.

iOS will get an update with iOS 10 but we’re unlikely to see major updates on the rest of the product line-up until a later date with perhaps the exception being a Macbook Pro refresh.

So assuming we basically know most of what the event entails  and Apple hasn’t kept a tighter ship with leaks this time around, reactions in the stock will probably range from “non event” to slight disappointment.

What we’ll see after the event is the more exciting part. We’ll see some initial sales numbers the Monday after the prior Friday release (rumors suggest Fri Sept 16th, but if not most certainly the following Fri Sept 23rd).  The main event will come in the third week of October when the company will give fiscal Q4 earnings and issue guidance for Q1.

For those looking to take a mildly bearish stance (or possibly to hedge an existing long), we think it could make sense to fade next week’s event with the intent to finance owning puts in November that will capture initial reviews and sales of the new iPhone, but importantly also includes fiscal Q4 earnings. Implied volatility in AAPL is dirt cheap into the event, with 30 day at the money IV below 20 and 60 day in the lows 20s:


Assuming we know most of what the iPhone event has in store, it makes sense to sell options in September (despite them being cheap) and buy options in November which will likely only see IV pick up.

The has come off a tad since breaking the well defined downtrend from last year’s highs with this summer’s rally from the low $90’s to $110 earlier this month. A retest of the downtrend could well be in the cards, but prior to earnings that could be a healthy support level near $102 as it is also where the stock’s 50 and 200 day moving averages are converging:

AAPL since Jan 2015 from Bloomberg
AAPL since Jan 2015 from Bloomberg


The upcoming event with much of the news known, the relatively low level of options prices in Nov and the technical set up lead us to be inclined to play for a continued consolidation near term, with the slightest bit of disappointment with initial sales and reviews and weak forward guidance causing the stock to fill in the July earnings gap.

So What’s the Trade?

*AAPL ($107.50) Buy AAPL Sept / Nov 105 put calendar for $2.75
  • sell Sept 105 put at 75 cents
  • buy Nov 105 put for $3.50

Rationale: Max profit at 105 on Sept expiration with the ability to then spread the November puts and further reduce premium risk. Ideally, the stock sells off towards 105, Sept 105 put expires worthless and then you’ve financed owning Nov 105 puts. The risk to the trade is that the stock goes higher from here into September expiration in which case the sale of the September puts will not be enough to make up for losses in the November puts. There’s also risk of the stock collapsing below support before September expiration, but this trade will be profitable even if that happens as long as the stock isn’t too far below the 105 strike in the next 2 weeks.

For those already long the stock this probably isn’t the ideal hedge because of the risk of being long deltas below 105 if that happens in the next few weeks. Before the event we’ll follow up with some hedges and other overlays for those already long the stock.