The shine is off Apple Inc. (AAPL) as shares trade in limbo between growth and value. But for investors with a longer-term horizon beyond the next product update or quarterly report, a bull put spread program in Apple stock is an interesting proposition right here, right now. Let me explain.
Apple is at a crossroads. The company of course missed Street views last week and announced its first decline in quarterly revenue in 13 years. And conditions could get worse before they get better for AAPL.
The fact is many long-time Apple stock investors are trying to come to terms with dumping shares like activist investor Carl Icahn as Apple sheds its meteoric growth-stock persona.
Most agree it’s going to be some time before Apple might really wow consumers again with a generational skip to the iPhone 8 or further down the road with a truly innovative and technological marvel such as the Apple Car.
What’s more, AAPL isn’t necessarily a “top value stock” either, despite the popularity of insisting AAPL can sit atop a new investing throne.
Bottom line, Apple may have all the cash in the world in its coffers, but the lack of a blockbuster product, heavy competition and the breakdown of Moore’s Law are all factors pressuring sales, and possibly making Apple’s low market multiple more of an illusion than real value.
Don’t get me wrong. In spite of what’s been said, this strategist isn’t bearish on AAPL. I’m simply pragmatic and want to invest in Apple smartly.
Apple Stock Monthly Chart
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For technical traders, a pattern like the current double bottom can be viewed as a value proposition. But should support fail, all long bets should be exited.
Were pattern support to fail, which we believe will occur, our next downside price target would be $85 to $87.50. Apple’s support zone consists of a long-term trendline from 2009, 62% retracement level from the 2013 corrective low and 38% support from 2009’s financial crisis bottom.
And below $85 to $87.50? A corrective two-step pattern test near $81.25 could ultimately provide long-lasting support for Apple stock bulls. My crystal ball, however, is broken. But that’s not to say all is lost either.
Your Best Bet Trading AAPL
Reviewing the options board, I like the May $90/$87.5 bull put spread as a way to start a longer-term campaign of accumulating Apple stock and collecting income.
With shares at $93.62, this bull put spread trades for about 50 cents. The trader keeps the full credit if AAPL remains above $90, or put another way, doesn’t drop in price by more than 3.9%.
A move of that magnitude isn’t out of the question, but the likelihood Apple is below $90 at expiration is less than 27% based on current statistical pricing. That’s good news for the spread.
For what it’s worth, I anticipate lower prices at a markedly slower pace as stronger value enters the picture and traders support shares once more.
At the end of the day (or, in this instance, less than three weeks), the trader can repeat this process for additional spread credits and build their income stream.
Lastly, should Apple stock force an assignment, this spread trader maintains limited risk. This means the trader can either exit for a defined loss or begin accumulating AAPL at prices below today’s levels.
In my opinion, that’s smarter food for thought when it comes to Apple stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
