Apple Inc. (AAPL) has taken a bit of a beating on the sentiment front during the past couple of months. Plagued by disappointing Apple Watch market uptake, flagging iPad sales, and an exodus of “smart money,” Apple stock has done well to find a holding pattern in the $110 to $120 area for the past several weeks.
Despite the rising tide of negativity, there is a potential profit opportunity for short-term Apple stock bulls.
Thanksgiving will descend upon the U.S. next week, and the exodus of major players during the holiday-shortened week typically leads stock on a tryptophan-induced melt up. Historically, the S&P 500 averages a steady return for Thanksgiving week, and the Apple stock price should benefit as a result.
Before we get to trading ideas, let take a quick look at AAPL stock’s sentiment and technical outlooks. Despit the recent rise in bearish media headlines for Apple stock, the shares enjoy a rather bullish outlook from Wall Street analysts. Specifically, 38 of the 50 brokerage firms following AAPL rate the shares a “buy” or better.
Meanwhile, the 12-month consensus price target of $150 per share seems a bit conservative for AAPL stock, indicating that price target increases could be in the cards once the current sentiment narrative — low iPad sales and dwindling “smart money” — has run its course.
Outside of Wall Street, options traders have grown a bit gun-shy. Currently, the November/December put/call open interest ratio for AAPL rests at 0.79. While calls still outnumber puts among short-term AAPL options, this ratio arrives in the upper third of all those taken in the past year for AAPL stock.
Click to EnlargeTurning our attention toward short-term implieds, weekly November 27 options are pricing in a modest move of plus-or-minus 2.3% for AAPL stock during Thanksgiving week. This places the upper bound at $121.76, while the lower bound lies at $116.24.
With $120 being a significant short-term technical hurdle for AAPL, a breakout next week could lead to more significant gains. Meanwhile, key support at $110 appears to be safe, barring any major developments.
2 Trades for AAPL Stock
Call Spread: With an upside bias due to a holiday shortened week, AAPL bulls may want to consider flirting with a weekly Nov. 27 series $120/$121 bull call spread. At last check, this spread was offered at 48 cents, or $48 per pair of contracts. Breakeven lies at $120.48, while a maximum profit of 52 cents, or $52 per pair of contracts, is possible if AAPL stock closes at or above $121 when these options expire.
Put Sell: On the other hand, a tryptophan-induced market stagnation would be bad for any call trade relying upon any sizable holiday-week move. As such, traders might also want to consider a weekly November 27 series $113 put sell. At last check, the $113 put was bid at was bid at 15 cents, or $15 per contract.
As long as AAPL stock trades above $113 through expiration next Friday, traders pursuing this strategy will keep the $15 premium. However, if AAPL trades below $113 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $113 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
