You can love Apple Inc. (AAPL) products and be a long-term fan of the company, but a green-and-sweet-of-late AAPL stock favors bearish positioning for short-term traders with a weeklys vertical.
AAPL may be your favorite or “top value stock” as CNBC’s James Cramer recently heralded. Or maybe you have a price target of $150 on Apple like Needham & Company announced late Tuesday. That’s all good, longer-term.
But if you’re going to trade Apple shares right now, the AAPL price chart suggests lower prices and the opportunity to profit as a bear, irrespective of potential longer-term drivers of shareholder value.
And if we’re correct, bears and then bulls, able to buy on weakness, can (once again) make money in AAPL. Let me explain.
AAPL Stock Daily Chart
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Our bullish Apple stock analysis during that period and when bearish conversations were the rage in AAPL has generated a return in excess of 125% on a ‘now’ deep in-the-money bull call spread.
But that was a trade and conditions have obviously changed enough in AAPL to rethink strategy short-term. And as the chart currently emphasizes, fading the run-up in Apple shares is a low-risk, high-reward strategy right now.
Supporting this view, AAPL’s rally into a major downtrend line is also setting up to fail at key zone resistance comprised of its 200-day simple moving average and 50% to 62% Fibonacci levels.
Shares of Apple have a lot of technical hurdles to clear. And as this formidable resistance follows a price run of nearly 22%, bears now have a chance to make money.
Lastly, throw in a well-overbought broader market that’s all but erased 2016’s initial ‘the sky is falling’ investor anxiety and AAPL, the market’s largest capitalization stock, looks all the more attractive — as a short.
AAPL Stock Bear Put Vertical
Reviewing the AAPL options board, the weeklys April 29 $110 / $104 put spread fits in well with our short-term view of an opportunistic pullback for bears.
Priced for $2.20, this vertical’s breakeven is less than 2% below AAPL stock’s Tuesday closing price of $109.81 at $107.80.
Risk is limited to the debit paid, but if managed technically against Monday’s high print of $112.19 in AAPL stock, the loss can be reduced to around 60 cents based on a current Greeks.
Likewise, a stop tied to the 62% retracement level in AAPL should keep losses contained to around 50% of the max debit in the near-term.
At the same time, a close below $104 at expiration would generate a return of 172%, or $3.80, in just a couple weeks.
And bottom line, given what’s been addressed technically, what constitutes value in AAPL has this bear put spread looking like a short-term, smarter-money play for traders.
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.
