Last week, the media coverage of the stock market made it sound like we were in the middle of a full-blown correction … yet when you look at the scoreboard, we are still near all-time highs. So I deem this a crisis of sentiment. Nothing has changed in the fundamentals, but it feels bearish.
Yes, stocks were under pressure but for the same reasons as we’ve seen before. Investors were edgy over tariff headlines and negotiations. Apple (NASDAQ:AAPL) which could be the poster child for the stock market, dipped 3% dip off of its all-time highs. But a few red candles are not going to change the fundamentals of the healthiest stock on the planet.
In the next few days, there will be rhetoric that could negatively impact the stock off its Sept. 12 event. Consensus is that AAPL stock tends to rally into the event but then sell off.
This time it might be different. And therein lies the opportunity today.
Fundamentally Apple is still cheap. It sells at a 19 trailing price-to-earnings ratio. This is almost on third that of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Technically, the price action in apple is normal. It recently set new all time highs but there are supporting pivot zones below current price. The first support is around $214 per share and the second is closer to $206 per share.
I believe those are short-term opportunities to scalp some short-term profits. Eventually, the $200 per share level needs to be tested hard but it doesn’t look like it’s imminent in the next few days.
I have been a critic of AAPL CEO Tim Cook and have noted that they have missed a few opportunities, but this company has years of runway ahead of it. For now it is as healthy as anyone can hope for in an investment.
The value in Apple stock is definitely there, so going long it at a discount from the current price is not likely to be a financial disaster. I am not as confident in the upside hopium off of the September event as I am in the support below current price. That’s why for today’s trade, I use options, where I can create income without any out-of-pocket expense.
If the rally comes then I profit faster. But if investors shy away from it, it can fall 7% and I still retain my maximum gains. Usually I prefer longer-time-frame trades, but in this case I consider this a speculative setup on a quality stock.
If Apple is falling fast then it’s likely that the whole market is also in trouble. For now the macroeconomic environment is still conducive for more upside potential in stock market all political headlines aside.
The September AAPL event is a coin flip outcome. I am sure that there will be experts on both sides of the fence and they will each sound right. I remind myself that price is truth and all other headlines are pure noise.
Coming into this event, AAPL stock is up 28% year-to-date. This is impressive when you compare it to PowerShares QQQ Trust ETF (NASDAQ:QQQ) which is up 15% and GOOGL’s 7%.
AAPL Stock Trade Ideas
The Bet: Sell the AAPL Oct 12 $202.50 naked put. This is a bullish trade where I collect $2 to open. Here I have a 80% theoretical chance of success. But if the price falls below my strike then I accrue losses below $200.50.
Those who want to mitigate the risk that comes with selling naked puts can sell spreads instead.
The Alternate Bet: Sell the AAPL Oct 12 $$207.50/$205 bull put spread where I have the same odds of winning. Then the spread would yield 20% on risk.
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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.
