AAPL Stock: A Bullish Trade for Iron Stomachs

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Fresh off an October event littered with refreshed iMac and iPad product lines, Apple Inc. (AAPL) will join the earnings parade next week. Apple earnings for Q4 are slated to come out after the close of Monday’s trading, with Wall Street expecting a profit of $1.31 per share.

But will earnings be able to buoy AAPL stock when new iPads and iMacs were not?

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Technically speaking, Apple has followed the rest of the market lower, despite its rabid bullish following. AAPL stock has shed more than 6% since hitting a near-term high north of $102 last week, breaking below formerly staunch support at its rising 50-day moving average. The stock is now resting on key support in the $95 region.

If you were to ask the brokerage community if now is a good time to buy AAPL stock, you would get a resounding “yes!”

Specifically, Thomson/First Call data reveals a whopping 41 “buy” ratings for Apple stock, compared to just nine “holds” and one “sell.” Currently, the 12-month price target of $112 has room for improvement, representing only a 16% premium to AAPL’s close at $96.26 on Thursday.

Naturally, with such elevated expectations, you would expect the Street to be whispering about a better-than-expected report. Per EarningsWhisper.com, those whispers appear to be anticipating a profit of $1.40 per share, some 10 cents higher than the consensus. That said, high expectations are nothing new for Apple, as the company has topped Wall Street’s views in each of the past four reporting periods by an average of about 6.7%.

Turning to the options pits, we find that these speculative traders are also placing sizeable bullish bets. Specifically, the weekly October 24 put/call open interest ratio remains at a low reading of 0.38, as calls (or bets that AAPL stock will rise) nearly triple puts (or bets that AAPL stock will fall) despite the recent market turmoil. By comparison, the soon-to-be front-month November put/call open interest ratio arrives at a slightly more conservative reading of 0.61.

Overall, weekly October options are pricing in a potential post-earnings move of about 5% for AAPL stock. This places the upper bound at $100.78, while the lower bound rests at $91.22.

Options Trade on AAPL Stock

For those traders with the stomach to follow the bullish crowd in the current market environment, a Nov $95/$100 bull call spread has considerable potential.

At last check, this spread was offered at $2.29, or $229 per pair of contracts. Breakeven lies at $97.29, while a maximum profit of $2.71, or $271 per pair of contracts, is possible if AAPL stock closes at or above $100 when November options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/apple-aapl-options-earnings/.

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