Apple Inc. Offers a Sweet But Sour Position

What will $20.55 buy you at Apple Inc. (NASDAQ:AAPL)? Not much. But off and on the AAPL stock chart, it’s a number that has this strategist cautious and looking in the other direction for a “sweet” deal when things go “sour.” Let me explain.

AAPL Stock: Apple Inc. Offers a Sweet But Sour Position

AAPL stock finished Wednesday’s session as one of the day’s party poopers in helping set back the NASDAQ 100 by 0.65% with its more forceful decline of 1.59%. Behind the unwelcome bearish intrusion, more than a couple analysts are warning of various cracks in Apple’s shiny facade.

From weaker iPhone X sales trends forecasts to worries the company’s next, next big thing isn’t going to be the pricey HomePod which will compete against Echo from, Inc. (NASDAQ:AMZN) and the Home Mini from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL); AAPL stock investors were more intent to drop, rather than shop for, the world’s largest company.

At the end of the day, Wednesday’s price action has put some of Wall Street’s party favors on ice with Apple’s once, all-but-written-in-stone $1 trillion dollar market capitalization now $20.55 per share away from being a reality.

Personally, I’d rather just ask the question, “Hey Siri, is AAPL stock really sweeter for investors at $194.77 or a more sour $125?”

AAPL Stock Monthly Chart

Source: Charts by TradingView

The monthly chart of AAPL stock finds shares in a tenuous spot where investors need to tread cautiously.

Bottom line, shares of Apple are pressed up against long-term channel resistance line with stochastics in overbought territory. The fact stochastics has been showing some negative divergence the last few months is another concern. And if history does a bit of rhyming, a rally nearing two years in duration should also be a warning to bulls, given AAPL’s prior and fairly symmetrical corrections.

Lastly, Apple’s price structure from the low of the financial crisis does have some of the earmarks of an Elliott 5th wave. As a pattern top, a turn lower could precede a more substantial price correction in shares of perhaps as much as 30% without sounding off too many alarm bells of real trouble in AAPL stock off and on the price chart.

AAPL Stock Long Modified Put Spread

Given our “sour” view above, AAPL stock could be readying for a larger correction towards $125 if we’re proven right. It’s not a decline that I see as happening overnight and truthfully, I’d prefer to have a tiny bit more price confirmation to turn overtly bearish. Conversely, I’d also like to be a buyer after a ‘sweet’ and meaningful price drop in AAPL has forced a reset of overly bullish behavior in the market.

One strategy around this apparent quandary is a modified butterfly put spread. Reviewing AAPL stock’s options and shares at $174.22, buying the June $135/$130/$120 put butterfly combination for up to even money is one such position.

With roughly five months until expiration, this AAPL spread allows more than enough time for a larger price decline like the one discussed to transpire. If our forecast is off or wrong altogether, no money is lost since the position didn’t cost the trader any capital to establish.

If AAPL stock moves into the spread’s strike range, the trader can turn some sort of expiration profit from $135 down to $125, with a max payout of $5 at $130. Below $125 and losses start to build. There is however a very handy $5.00 cap on any butterfly spread liabilities.

As such, I personally view a paper loss of that type more “sweet” than “sour” and a welcome opportunity to buy AAPL stock at a compelling value compared to today’s prices.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.

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