Apple Inc. (AAPL) Starting to Look Attractive Again

Advertisement

Following three days of sharp losses on news of weaker iPhone production and sales, shares of Apple Inc. (AAPL) finally found some footing yesterday.

Apple Inc.: AAPL Stock Starting to Look Attractive Again

While I alluded to earlier issues surrounding AAPL stock in a previous post, stock price does matter when formulating trade ideas. With the AAPL stock price now down 4% over the past week from the recent highs of $112, AAPL is starting to look a little more attractive.

With a below-market price-to-earnings multiple of 11.4 and a dividend yield of 1.95% (compared to the 10-year U.S. Treasury yield of 1.87%), AAPL stock is certainly not pricey.

While the days of double-digit growth are past, AAPL still offers solid growth with a decent yield.

Technically, there is support for AAPL stock at the $103.50 level, corresponding to both the March 15 gap and the rebound low from last Aug. 25. The $103.50 level also equates to a 2% dividend yield on AAPL stock, which institutional buyers may deem to be an attractive entry point.

aapl421

APPL stock, which had been a relative outperformer to the S&P 500 since the February lows, has recently become a big underperformer.

NASDAQ OMX Alpha AAPL vs. SPY Index, which measures the comparative performance of AAPL versus the exchange-traded fund SPDR S&P 500 ETF (SPY), highlights this weakness.

I look for AAPL to close the performance gap and converge back towards the mean.

aapl421-1Earnings are due April 26 after the market closes, and with the slower growth news already now baked into the stock price, downside surprises should be somewhat tempered. The low P/E multiple should also help dampen any big adverse earnings reactions in AAPL stock price post earnings.

AAPL Stock Trade

I want to position further out in time in structuring a trade to mitigate the potential earnings effect. Specifically, I am looking to sell the AAPL May $100 puts and buy the AAPL May $97.50 puts for a 40 cents net credit or better.

The short strike price of $100 is 6.7% below the $107.13 closing price of AAPL, providing a decent downside cushion. The maximum gain on the trade is $40 per spread with a maximum risk of $210 per spread. Return on risk is 19%.

I would look to close out the spread on a meaningful move past the $100 level, while letting the spread expire worthless and keeping the initial credit if AAPL remains well behaved.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at tbiggam@deltaderivatives.com.

More From InvestorPlace

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/aapl-stock-price-apple-trade/.

©2024 InvestorPlace Media, LLC