What was a sweet Apple Inc. (NASDAQ:AAPL) narrative not long ago has, in this strategist’s view, turned decidedly sour. So while some investors remain bullish and others less so, a bear put spread is the better buy than Apple stock at current prices. Let me explain.
AAPL stock was one of Wednesday’s headline spoilers. Early on bulls tried to follow-through on Tuesday’s turnaround attempt from a rather abrupt, but long overdue corrective move in the market and prized barometers like Apple. But then the bears regrouped.
For its part, AAPL was down an outsized 2.14% compared to the S&P 500’s 0.54% decline following a Goldman Sachs initiation on the tech giant of “neutral.” The coverage is on the heels of last week’s headline earnings beat but one soiled by falling iPhone shipments and weak guidance and takes aim at bullish investors predicted iPhone X “super cycle.”
Our thoughts? While I’m contemplating an upgrade to a refurbished iPhone 6 or 7 and waiting patiently on $125 to be more optimistic on AAPL stock, a near-term bearish vertical is looking well-supported off and on the price chart.
AAPL Stock Daily Chart
In last writing about AAPL stock in late January, evidence provided by an extended monthly view showed shares were in a tenuous spot technically on the price chart.
The warning could not have been better timed. Apple has fallen from just over $174 to a low on Tuesday of $154 or more than 11% in just under two trading weeks. It’s also far from over in our estimation.
If the big picture detailed last time pans out, AAPL could see a low near $125 before all is said and done over the next few to several months. And now, of course, important progress towards that price target has started to play out on the more discreet daily price chart provided above.
On the smaller time frame, Apple shares have broken a couple Fibonacci supports priced off three key lows over the past couple years, as well as a one-year long up-channel. And while trading has been volatile, what was once support has become resistance in AAPL stock.
Bullish AAPL stock investors may rightfully notice there are other technical supports nearby and anxiously waiting to be tested. To that, I say “there’s always a line somewhere.”
In this case, if AAPL stock proceeds to break below the 200-day simple moving average again, our belief is the second time will prove the charm and the recent low of $154, a short-lived affair for bargain hunters.
AAPL Stock Bear Put Spread
Given our ‘sour’ view at current prices and shares still technically having a good amount of downside until I’d reasonably look to be a buyer of AAPL stock, I like the idea of approaching shares bearishly using a shorter-term vertical put spread.
This type combination offers a nice bang for the buck if Apple cooperates technically. The spread also offers good adjustment possibilities while greatly reducing and limiting risk to a known dollar amount.
Reviewing the Apple options board, one combination favored right now is the 09’ March $152.50/$145 put spread. With shares at $159.54 this vertical is priced for $1.35.
Stated another way and equally compelling, the position offers less than 1% stock risk compared to shorting Apple and could produce a max gain of $6.15 if a 14% corrective move thus far turns into 19% by expiration.
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.