It’s human nature to enjoy cherry picking opportunities. And when it comes to finding a timely topping pattern on the price chart, Apple Inc. (NASDAQ:AAPL) is looking ripe enough for bullish investors to take their own bite out of AAPL stock using a smarter and well-placed put credit spread on AAPL stock. Let me explain.
What’s going on in Apple these days? Off the AAPL stock price chart and without exaggerating, there’s literally dozens if not hundreds of updates on the world’s largest company ranging from whispers of the next, next big thing, upgrades, downgrades, the impact of the trade war between the US and China, supply chain checks and the list goes on and on.
The latest, which will already be buried by new market insights, rumors and the likes by the time this article makes its way to the proverbial printing press, is news from Apple’s chief arch-rival Samsung Electronics Co Ltd. Overnight, the South Korean-based electronics giant warned weaker global demand for smartphones is eating into the bottom line and forecast its slowest profit growth in more than a year.
Of course, for the iPhone lifers out there, this might seem to be Samsung specific and tied to poor smartphone sales after rolling out the S9 iteration of the popular but less-in-demand Galaxy device. And there may be something to that.
But as a consumer who just made the switch from the iPhone 5 to the Galaxy S6 (and no, that’s not a misprint), I’m more up to date on market trends on the AAPL stock chart — and the risks are definitely growing for investors.
AAPL Stock Monthly Chart
Looking at the big, big picture of AAPL stock and since the depths of last decade’s financial crisis, shareholders have enjoyed an impressive return on investment. But as the saying goes, all trends do eventually come to an end. And Apple shares do appear to be at risk.
Currently, AAPL is pressed up against technical lines in the sand from various Fibonacci-based extension lines and resistance from a broadening pattern. The icing on the cake for a forthcoming correction is June’s monthly doji decision candle. If broken to the downside the implications could be challenging, to say the least, for Apple bulls.
Net, net, the technical evidence is building for bears. Yet as investors are only allowed, according to folklore, to cherry pick one top in their trading lifetime; I’ll wisely forgo that bearish call-to-arms. Instead, I’d rather offer bullish investors a smarter recommendation on how to position in AAPL stock today given the circumstances.
AAPL Stock (Bearish) Bull Put Spread
With mounting concerns apparent on the AAPL stock chart, it’s a much better time for bullish investors to buy shares on the dip. The problem with that logic is waiting and trying to time both the duration and depth of the move or even missing out entirely if the technical forecast doesn’t pan out. A solution to this dilemma is for today’s Apple investors is to sell a simple bull put spread.
Reviewing AAPL’s options market and shares at $186.60, one favored play is the 10’ Aug $170/$165 put vertical for 50 cents. This out-of-the-money credit spread receives the credit as long as Apple shares remain above $170 at expiration. That’s a nice margin of safety and works out to a corrective decline of nearly 12.50% from AAPL stock’s all-time-high of $194.20 set in early June.
If shares are pressured below $170, the trader’s exposure is contained to $4.50 or just under 2.5% of the risk associated with buying AAPL stock today. For bullish investors that also means the chance to buy the actual underlying at a much steeper discount is possible.
For instance, if Apple shares collapsed to $125 overnight and what many might say would be the opportunity of a lifetime, this vertical trader could buy shares at an effective price of $129.50. That compares very favorably to an investor buying AAPL stock today at $186.60. Bottom line, given what’s been presented and an uncertain earnings event at the tail-end of July, this simply looks like a much smarter way to take a bite out of AAPL stock in today’s market.
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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