Apple Inc. (NASDAQ:AAPL) investors are in for a bit of a surprise when the company reports earnings next month. You see, the iPhone 8 and 8 Plus have only been available for customers to buy since late September. What’s more, the iPhone X won’t actually be available until October 27.
Despite Apple announcing all three smartphones weeks ago, the impact from new iPhone sales on fourth-quarter earnings will be minimal, if it’s noticeable at all. That’s bad news for bulls looking for a higher AAPL stock price.
The main problem is that Apple investors continue to pretend that this is the same company is was under the late Steve Jobs. It is not. There is no more “One more thing….” to bolster Apple this time around, and with sentiment heavily bullish ahead of Apple’s November 2 earnings report, AAPL stock could be in for another plunge.
Speaking of bullish sentiment, everyone from analysts to options traders are betting on an Apple stock price rally. Specifically, Thomson/First Call reports that 33 of the 45 analysts following AAPL stock rate the shares a “buy” or better, with no “sell” ratings to be found.
Furthermore, the consensus 12-month price target of $173.23 represents a premium of more than 11.5% to Friday’s close. In other words, there is room for both downgrades and price target cuts if things go wrong.
Click to Enlarge Apple’s technical backdrop could also work against the shares. Currently, AAPL stock is battling resistance in the $155-$156 region. This area has acted as both support and resistance in the past, meaning Apple stock is going to have trouble making headway heading into November.
The shares are also staring up at resistance from their 50-day moving average, which has stalled in the $156-$157 region.
Turning to AAPL’s options activity, we find more bullish sentiment for AAPL stock. Currently, the November put/call open interest ratio currently rests at bullish reading of 0.63, with calls nearly doubling puts among back-month options.
Overall, November implieds are pricing in a potential move of about 6.5% for AAPL stock heading into expiration. This places the upper bound at about $165.10, while the lower bound lies at about $144.90.
2 Trades for AAPL Stock
Put Spread: With expectations high heading into fourth-quarter earnings, and Apple sure to let down many investors looking for strong iPhone sales, a bearish play on AAPL stock seems prudent. Traders looking to bet against Apple stock ahead of earnings might want to consider a November $145/$150 bear put spread has plenty of potential to hit its maximum return.
At last check, this spread was offered at $1.35, or $135 per pair of contracts. Breakeven lies at $148.65, while a maximum profit of $3.65, or $365 per pair of contracts, is possible if AAPL stock closes at or below $145 when November options expire.
Put Sell: If an outright bearish play makes you nervous, then an out-of-the-money put sell may be more to your risk level. Along those lines, a November $140 put sell might be a way to capitalize on AAPL’s technical support
At last check, this put was bid at 82 cents, or $82 per contract. The upside to this put sell strategy is that you keep the premium as long as AAPL stock closes above $140 when November options expire. The downside is that should AAPL trade below $140 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $140 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
