Was 2017 the last great year for Apple Inc. (NASDAQ:AAPL)? It’s a very real possibility. The company is running on the fumes of innovation, with many of its famed devices now shadows of their former selves. It’s now time to seriously consider betting against Apple stock.
Paul Mampilly, my colleague over at Banyan Hill, has a very dire prediction for AAPL stock. ““Apple is doomed,” he says, “… most people buying Apple stock are buying into a memory. That memory is of Steve Jobs introducing truly revolutionary products.”
Indeed. Apple has not introduced a truly revolutionary product in years. Even the much-hyped iPhone X arrived with features that were either in-line with or just behind many of its competitors. Furthermore, Apple was recently caught hiding battery deficiencies in its older devices by using software to limit performance.
These are not the actions of Steve Jobs’ Apple.
Click to Enlarge Still, Apple stock managed to gain 48% in 2017. Bullish sentiment surrounding the iPhone X release helped drive buying activity for AAPL stock, even though iPhone sales continued to show poor comparisons with 2016.
Unless Apple does something big this year, we are sure to see more of this in 2018.
But that sentiment is beginning to wear thin. Apple stock is off its December highs near $177, and the shares have breached support at $170 and their 50-day moving average. That said, AAPL is sure to get a bit of a post-holiday rally for the first week or so of 2018 as the market endures the January Effect. After that, there is little in the way of support for Apple stock.
Once the decline starts, there is plenty of fuel for the fire. Apple stock sentiment has always been bullish across the board. For instance, Thomson/First Call reports that 32 of the 38 analysts following AAPL rate the shares a “buy” or better, with no “sell” ratings at all. Furthermore, the consensus 12-month price target rests at $187.58.
In short, there is plenty of room for both downgrades and/or price-target cuts as the situation turns south for Apple.
And, there are already cracks forming in Apple’s bullish sentiment backdrop. Short sellers ramped up their AAPL positions by 32% during the most recent reporting period. It’s one of the largest increases in Apple short interest I can remember, and a sign that Wall Street is anticipating a drawdown in AAPL stock heading into 2018.
On the options front, AAPL stock speculators are also having second thoughts about the shares. Currently, the January 2018 put/call open interest ratio arrives at 1.11, up sharply from December’s readings below 0.60.
The put/call OI ratio rising alongside AAPL short interest is another bearish indicator. Why? Because short sellers typically buy long call options to hedge their short stock positions. A rising put/call OI ratio indicates that this isn’t happening, and is a sign that short sellers are strong in their convictions.
Turning to January 2018 implieds, options traders are pricing in a potential move of about 33% for AAPL stock through expiration. This places the upper bound at $175.50 and the lower bound at roughly $164.50.
2 Trades for AAPL Stock
Put Spread: Traders looking to bet on a reversal for AAPL stock heading into 2018 might consider a Jan 2018 $165/$170 bear put spread. At last check, this spread was offered at $1.72, or $172 per pair of contracts. Breakeven lies at $168.28, while a maximum profit of $3.28, or $328 per pair of contracts — a potential return of 90% — is possible if AAPL stock closes at or below $165 when January 2018 options expire.
Put Sell: If you’re looking for a more conservative play on AAPL stock, then a Jan 2018 $160 put sell might be a way to capitalize on AAPL’s bullish sentiment backdrop and support in the $160 region. At last check, this put was bid at 55 cents, or $55 per contract.
As always, you keep the premium received as long as AAPL stock closes above $160 when January 2018 options expire. The downside is that should AAPL trade below $160 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $160 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.