Last night, it was Apple’s (NASDAQ:AAPL) turn to report earnings. This earnings season has been filled with violent moves on earnings headlines from mega caps like Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL). But now, Apple has delivered a good report and — for a change during this earning season — we can concentrate a little bit on fundamentals.
Coming into this earnings report Apple stock was up 11% year-to-date and 25% for 12 months which is in line with the PowerShares QQQ Trust (NASDAQ:QQQ). But of late it had been eerily silent. Much of the headlines were centered around momentum stocks like AMZN, NFLX and more recently the FB’s debacle.
So Apple was relatively quiet coming into the earnings event even while knocking at the $200 per share level. Also coming close is the $1 trillion mark.
Fundamentally, AAPL still is cheap at 18 P/E. But that has always been the case, so that alone is not a reason to chase the upside hopium. However therein still lies the opportunity.
Even though Wall Street typically wants a tangible reason to chase Apple stock higher, selloffs are definite opportunities to buy and go long. I will use that fact to profit and leave room for error.
The overall market environment for equities is still positive for 2018. But there’s so much negative rhetoric that it would only take one headline to throw it all away. So although I have great confidence that I can profit from buying Apple shares in the long run, I fear the short term fake-outs.
AAPL being cheap leaves more upside potential in the stock. For example, Apple can still catch up in the smarthome category, and they have potential methods of entry into the autonomous car race. More importantly, Apple has the resources to get things done, they just need to do it. The services segment is growing and that flows well to the bottom line.
So today’s trade I share a setup that will deliver profits even if AAPL stock falls. I merely need proven support levels to hold through 2018 to profit.
It is important to note that I am not an AAPL perma-bull. My trade is not the same as me endorsing the current management. In fact I have been on record stating that they need a new CEO.
There is little innovation under Tim Cook’s reign. He’s merely been keeping the giant boulder that Steve Jobs left running on track. Compare that to the news that keeps flowing out of Amazon entering new areas of competition.
Nevertheless for the medium-term Apple remains the cash generating machine for months to come and I can profit from it.
Two Options Trades for AAPL Stock
The Trade: Sell AAPL Dec $170 put for around $2. This is a bullish trade which does not require a rally to profit. Here I have an 85% theoretical chance of success. But I would accrue losses below $168.
Selling naked puts is daunting. Those who want to mitigate that risk can sell spreads instead.
The Alternate Trade: Sell the AAPL Dec $170/$165 bull put spread which has about the same odds of winning and would yield 12% on risk. Compare this with risking $200 per share here and without any room for error expect a rally profit.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.