We’re recommending a bearish trade on Apple (AAPL). AAPL had a nice run from late April to early September, as traders on Wall Street geared up for the release of the iPhone 6 and the Apple Watch. Now that the dust has settled, it looks like traders are moving into profit-taking mode on this stock, and we are ready to capitalize on the pullback, which we think will happen in the lead up to the company’s earnings announcement on Oct. 20, after the market closes.
From a fundamental standpoint, while there are murmurings about the new iPad, there isn’t as much to get excited about with AAPL now that its major product release is over. Competitors, like Samsung, have hardware that is just as good as AAPL’s (which appears to be playing catch up at the moment).
AAPL’s new mobile payment system is going to be interesting to watch, but it is competing as the newcomer against established participants like PayPal, Amazon (AMZN) and others. Basically, it comes down to growth expectations. Sure, AAPL will continue to generate tons of cash, but the company’s rate of growth is slowing, and Wall Street doesn’t like to pay high earnings multiples for slower rates of growth.
From a technical standpoint, AAPL is facing a lot of resistance at its current price level. Going all the way back to September 2012, AAPL was at this same split-adjusted price level (the stock went through a 7:1 stock split this year on June 8) when it turned around and started moving south. This sets the stock up for a potential long-term double-top bearish reversal. Once the stock breaks through its current support level at ~$97.50, we anticipate it will drop to ~$95 (the support level established in early August).
To profit from the drop, we recommend the following:
‘Buy to open’ the AAPL November 95 Puts (AAPL141122P00095000) for a maximum price of $2.80.
John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get 1 free month today.
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