Apple Inc. (AAPL) has been in a slump since mid-2015. Plagued by slow iPhone shipments, questionable product launches and updates, and a general lack of innovation, AAPL stock has seen confidence slip in even its most ardent supporters.
The company has a chance to bolster slipping sentiment tomorrow, however, when Apple steps into the earnings confessional to release its second-quarter results.
Wall Street is expecting year-over-year declines in both revenue and earnings for Apple. Earnings are seen falling to $2 per share from $2.33 per share in the year-ago period, while revenue is expected to dive 10.4% to $51.97 billion. Slowing iPhone shipments are the main culprit for the poor year-over-year comparisons, and rumors that the iPhone 7 will not bring any major design changes have created a bit of a stir for guidance.
Despite these warning signs, expectations remain high for AAPL stock. EarningsWhisper.com places Apple’s fiscal second-quarter whisper number at $2.04 per share. But earnings beats are par for the course where Apple is concerned, as the company has topped the Street’s target in all but one quarter in the past four years.
Furthermore, the brokerage community remains extremely bullish on Apple stock. Analysts have a 12-month consensus price target of $133.87, which is a healthy premium of nearly 27% to Friday’s close, according to data from Thomson/First Call. All told, AAPL stock has attracted 38 buy ratings, compared to just eight holds and one sell.
Skepticism is creeping into Apple options, though. Specifically, AAPL’s April/May put/call open interest ratio comes in at 0.75, with puts attracting a bit more attention than usual for the stock. What’s more, this ratio climbs to 0.81 for the weekly April 29 series, indicating more concern for Apple’s quarterly report.
Click to Enlarge Overall, weekly April 29 series implieds are pricing in a potential post-earnings move of about 4.7%. This places the upper bound at $109.95, while the lower bound lies at $100.05.
A rally would leave AAPL stock just shy of resistance at $110, while a decline would test psychological support at the century mark.
2 Trades for AAPL Stock
Call Spread: Apple has a history of easily topping Wall Street’s estimates, leaving traders to focus on guidance and iPhone shipments — and there are plenty of concerns on both fronts.
That said, most of these concerns may already be priced into Apple stock, given AAPL’s selloff heading into tomorrow’s report.
With the shares boarding on oversold levels, a bullish short-term trade may be in order. Those looking to jump on the bullish bandwagon might want to consider the May $105/$110 bull call spread.
At last check, this spread was offered at $2.02, or $202 per pair of contracts. Breakeven lies at $107.02, while a maximum profit of $2.98, or $298 per pair of contracts, is possible if Apple stock closes at or above $110 when these options expire.
Put Sell: On the other hand, if you’re not feeling an outright bullish trade on AAPL, then a weekly Apr 29 series $95 put sell might fit the bill. At last check, this option was bid at 17 cents, or $17 per contract. As long as AAPL stock trades above $95 through expiration this Friday, traders pursuing this strategy will keep the $17 premium. However, if AAPL trades below $95 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $95 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
