Despite one of the most bullish backdrops a shareholder could ask for, Apple Inc. (NASDAQ:AAPL) stock is souring. So much so that the tech titan has now turned negative year-to-date.
And that’s saying something! In stark contrast, the Nasdaq-100 (of which AAPL is the largest component) is up 9% for 2018. The divergence is massive and illustrates just how worried AAPL stock investors have become.
The selling sortie has taken the stock below both its 20-day and 50-day moving averages. And at this rate of descent, a 200-day test won’t be far behind. Volume patterns are adding further urgency to the downdraft.
Distribution days are multiplying suggesting institutions are ringing the register ahead of Thursday’s earnings release. One price level worth eyeing for the week ahead is $166. It’s a key support level that could finally bring buyers to the yard.
Technicals aside, this week’s earnings announcement will undoubtedly set the tone for AAPL moving forward. We’ll soon find out if all this profit-taking has been justified.
As is customary ahead of a binary event, implied volatility has risen dramatically. In fact, with an implied volatility rank of 100%, Apple stock options are as expensive as they’ve been all year long.
And therein lies opportunity.
The AAPL Earnings Trade
With Apple stock already down some 7%, I’d rather be a buyer than a seller into earnings. But rather than structuring the bet as one requiring the stock to rise before profiting, we’re going to simply wager that AAPL won’t fall much further from here — even if earnings disappoint.
Sell the March $150/$145 bull put spread for around 65 cents. Consider it a bet that Apple sits above $150 at expiration. Basically, we will win as long as the stock doesn’t fall more than 10% further over the coming month.
The max reward is capped at the initial 65 cents, and the max risk is $4.35. To minimize the damage if the stock gets shattered post-earnings, exit on a break below $150.
As of this writing, Tyler Craig held bullish options positions in AAPL. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
