Investor sentiment is flagging on Apple Inc. (AAPL), and that spells trouble for Apple stock. Once the kind of highflying, hyped-up PR events, Apple’s WWDC has been all but a let down this week, with none of the “One more thing” spark. Furthermore, analysts are beginning to question unit sales figures again, this time for the Apple Watch.
And now, Apple has been ordered to stop sales of its iPhone 6es in Beijing because of design similarities between them and a Chinese-made phone.
Because of this rising tide of negativity, there is a potential profit opportunity for short-term AAPL stock bears. But before we get to trading ideas, let take a quick look at AAPL’s sentiment and technical backdrops.
AAPL Sentiment Check
Starting with the brokerage community, Apple stock continues to see a significant wellspring of bullish support from analysts. According to data from Thomson/First Call, 38 of the 47 analysts following AAPL rate the shares a “buy” or better, with no “sell” ratings to be found.
Meanwhile, the 12-month consensus price target rests at $124.93. However, JPMorgan recently cut its target to $105 from $125 due to lowered expectations for Apple Watch demand. If more analysts follow suit (i.e., the iPhone 7 unit sales revisions of a few months ago), Apple’s stock price could take a hit across the board.
On the options front, speculative traders are also clinging to a bullish outlook for Apple stock. Specifically, the July/August put/call open interest ratio for AAPL rests at 0.64, with calls easily outnumbering puts among options set to expire within the next couple of months.
Click to Enlarge Overall, July 15 series options are pricing in a potential move of about 4.7% for Apple stock. This places the upper bound at $102.11, while the lower bound lies at $92.89. Technically, $100 has been a serious roadblock for AAPL recently, while support lies at $95.
A breach of either of these levels could see Apple stock move considerably more than implieds are pricing in. In other words, AAPL options might be rather cheap at the moment.
2 Trades for AAPL Stock
Put Spread: With the stock struggling to make any headway recently, and a small but growing bearish contingent, there is a fair amount of risk for AAPL right now. Additionally, if more brokerage firms follow JPMorgan’s lead, Apple stock is sure to breach support near $95.
Traders looking to bet against AAPL might want to consider a July 15 series $92.50/$95 bear put spread. At last check, this spread was offered at 53 cents, or $53 per pair of contracts. Breakeven lies at $94.47, while a maximum profit of $1.97, or $197 per pair of contracts, is possible if AAPL stock closes at or below $92.50 when these options expire.
Call Sell: If betting directly against Apple stock makes you nervous, a July 15 series $110 strike call sell position may fit the bill. Such a trade is especially useful if you already own AAPL stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $110.
At last check, this option was bid at 10 cents, or $10 per contract. A sold call allows you keep the premium as long as AAPL stock closes below $110 at expiration. On the downside, if Apple stock rallies above $110 prior to expiration, you could be forced to provide 100 shares at current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
