Apple Inc. (NASDAQ:AAPL) will step into the earnings limelight after the close of trading on Monday to offer up its much-anticipated first-quarter earnings report and iPhone sales figures. Despite a small smattering of negative headlines, including a downgrade to “hold” at Societe Generale, the sentiment backdrop for Apple stock is overwhelmingly bullish heading into the event.
Overall, Wall Street is expecting earnings for Apple stock to rise 29% from $1.66 per share to $2.14 from the same quarter last year. Revenue is also seen adding double-digits, with the consensus targeting a 22.1% increase to $55.7 billion in the quarter.
But the quarterly figures are typically a foregone conclusion for Apple, with the company topping Wall Street’s estimate in each of the past four quarters. As a result, EarningsWhisper.com reports that the first-quarter whisper number for Apple stock arrives nearly 8% higher at $2.31 per share.
As all investors of Apple stock know, earnings will not be enough, and iPhone sales will be heavily scrutinized. Currently, Wall Street is anticipating iPhone sales of 54.9 million units. Furthermore, guidance or hints at Apple Watch sales will also be scoured over, with the consensus looking for sales to top 19.6 million units in the first 12 months.
All in all, the brokerage community remains extremely bullish on AAPL’s long-term prospects. According to data from Thomson/First Call, 35 of the 46 analysts following Apple stock rate the shares a “buy” or better, compared to 10 “holds,” and just one “sell” rating. There is room for improvement, however, as the 12-month price target of $145 represents a quite modest premium of just 12.7% to yesterday’s close.
Click to Enlarge Turning to the options pits, AAPL remains a crowd favorite among this speculative group of investors. Currently, AAPL’s May put/call open interest ratio comes in at 0.57, with calls nearly doubling puts among contracts set to expire within the next month. This ratio creeps slightly higher when we zero in on the weekly May 1 series, arriving at 0.63. In the May 1 series, peak open interest lies at the in-the-money $125 call strike, totaling 125,451 contracts, while peak put open interest also rests at the $125 strike, numbering 107,270 contracts.
Overall, weekly May 1 series implieds are pricing in a potential post-earnings move of about 5.7% for Apple stock. This places the upper bound at $135.84, while the lower bound lies at $121.16. A breakout to the upside would place AAPL stock in record-high territory, while a decline would threaten support at the psychologically key $120 level.
2 Trades for Apple Stock
Call Spread: With the company’s propensity to surprise either on earnings or on iPhone sales, its hard to bet against AAPL heading into an earnings report, no matter how much bullish sentiment is levied against the shares. For those looking to jump on the bullish bandwagon, the weekly May 8 series $130/$135 bull call spread has considerable potential.
At last check, this spread was offered at $1.99, or $199 per pair of contracts. Breakeven lies at $131.99, while a maximum profit of $3.01, or $301 per pair of contracts, is possible if AAPL stock closes at or above $135 when these options expire.
Put Sell: On the other hand, AAPL’s recent stagnation is causing you a bit of concern about the stock’s upside potential following earnings, then an out-of-the-money put sell position may be the right fit. At the close of trading on Wednesday, the weekly May 1 series $120 put was bid at $1.14, or $114 per contract.
As long as Apple stock trades above $120 through expiration next Friday, traders pursuing this strategy will keep the $114 premium. However, if AAPL trades below $120 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $120 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
