A Safer Way to Sell Apple Inc. Stock

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AAPL stock - A Safer Way to Sell  Apple Inc. Stock

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Apple Inc. (NASDAQ:AAPL) continues the seemingly inevitable climb towards a $1 trillion market cap. AAPL stock is now less than 3% away from hitting that unprecedented milestone. While many will be caught up in the inevitable fanfare, the contrarian and value investor in me is taking a much more tempered viewpoint. Time to take a somewhat bearish stance on AAPL.


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On a fundamental basis, AAPL stock is no longer cheap. The price-to-earnings ratio for Apple is now above 18 and approaching the highest levels in the past 5 years. The dividend yield of 1.5% is nearing the lowest percentage in that same time frame.

Price to sales just exceeded 4 and is at the loftiest reading since 2009.


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So while all eyes are on AAPL stock becoming a trillion dollar baby ($197.24 is the magic number), important to remember that valuations are getting decidedly stretched in Apple. At some point, valuations do matter again.

AAPL stock is also getting overbought on a technical basis. The 9-day RSI just breached the 70 level, which has been a reliable sign of a top in the past. Shares are up over 18% since bottoming out at the $160 area in late April.

The price action yesterday also hinted at a top. AAPL stock traded up to a fresh new high at $193.42 before reversing course to close back near the lows of the day at $191.83. This bearish shooting star candlestick pattern is many times a sign that the buyers have become exhausted, especially after such a massive rally.


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Certainly the massive stock buyback and lingering exuberance over Warren Buffett taking a major stake in AAPL stock can propel Apple shares even higher. Ultimately, though, I think the euphoria will fade along with the price, especially once AAPL stock hits the long awaited trillion mark. So to position to be a seller of an overvalued and overloved Apple on a further rally, a defined risk bear call spread makes probabilistic sense.

AAPL Stock Trade Idea

Buy AAPL July $205 calls and sell AAPL July $200 calls for a 95-cent net credit.

Maximum gain on the trade is $95 per spread with maximum risk of $405 per spread. Return on risk is 23.5%. The short $200 strike price provides a 4.3% upside cushion to the $191.83 Monday closing price of AAPL stock and also sets up to short Apple at over a trillion dollar market cap.

Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/a-safer-way-to-sell-apple-inc-aapl-stock-at-over-a-trillion-dollars/.

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