Another earnings season, another quarterly report from tech darling Apple Inc. (NASDAQ:AAPL). Unlike last quarter, when concerns about iPhone 7 sales were dominating the headlines, Apple’s sentiment backdrop in the financial media has been relatively quiet, which should bode well for Apple stock and options traders.
Yes, earnings growth is still down year over year for Apple. Currently, Wall Street is expecting a profit of $1.65 per share from the Cupertino-based firm, down from $1.96 per share a year ago. Revenue is also seen arriving lower, off 8.9% at $46.89 billion.
Still, these targets should be moot points, as all eyes will be focused on early iPhone 7 sales figures for confirmation of earlier headlines professing sell-outs of certain models.
Aside from iPhone unit sales figures, guidance will be the next major driver for Apple stock. The company has apparently abandoned Project Titan — Apple’s electric (self-driving?) car initiative. The move could be a plus for Apple, as it shifts its focus back toward innovation of its main product lines.
Outside of the financial media, sentiment on AAPL stock is heavily bullish. For instance, EarningsWhispers.com reports that the whisper number of $1.75 per share for the fiscal fourth quarter. Meanwhile, Thomson/First Call reports that the brokerage community has doled out 40 “buy” ratings, compared to just seven “hold” or worse ratings.
The 12-month consensus price target has come down to earth in the past couple of months, resting at $128.32 — a roughly 10% premium to yesterday’s close.
If Apple were to get a sentiment boost from anywhere following earnings, it would appear to be upward price target revisions.
Click to Enlarge Options traders have also come back into the bullish fold on Apple stock. At last check, the October/November put/call open interest ratio for AAPL rested at 0.58, with calls nearly doubling puts among options set to expire within the next two months. However, this ratio rises to 0.98 for the weekly Oct 28 series, showing a hint of trepidation heading into Apple’s earnings report.
Overall, weekly Oct 28 series implieds are pricing in a potential post-earnings move of about 4%. This places the upper bound at about $121.26, while the lower bound lies at about $111.94 from Friday’s close. A rally would push Apple stock back above former support at $120, while a decline could see the shares test support in the $110 region.
2 Trades for Apple Stock
Call Spread: Apple stock is currently retreating from short-term resistance near $118. The pullback has been a healthy one, and is helping to mitigate last week’s overbought condition. As such, any continued controlled pullback ahead of tomorrow’s quarterly report should be a good thing, setting up a post-earnings rally. Traders looking to bet bullish on Apple stock ahead of earnings might want to consider a Nov $115/$120 bull call spread.
At last check, this spread was offered at $2.16, or $216 per pair of contracts. Breakeven lies at $117.16, while a maximum profit of $2.84, or $284 per pair of contracts, is possible if Apple stock closes at or above $120 when November options expire.
Put Sell: If an outright bull call play makes you nervous, then an out-of-the-money put sell may be more to your risk level. Along those lines, a weekly Oct 28 $110 put sell might be a way to capitalize on AAPL’s technical support
At last check, the October 28 series $110 put was bid at 47 cents, or $47 per contract. The upside to this put sell strategy is that you keep the premium as long as Apple stock closes above $110 when October options expire at the end of this week. The downside is that should Apple trade below $110 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $110 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
