Takes A Licking and Keeps On Ticking. Timex? No. I am sure that you have noticed the broadly disputed story last week that 30 or so tech companies had purchased servers that came complete with Chinese government spy chips, free of charge. I am sure you noticed consumer electronics giant Apple. (AAPL) among them. Then, I am sure that you noticed Greenlight Capital's announcement that it had exited the name for a couple reasons, among them... retaliatory Chinese tariffs.
However, the stock keeps on keeping on. The name does not appear to suffer along with other tech stocks. The name does not appear to suffer with other consumer discretionary names. On Monday, Citigroup analyst Jim Suva raised his price target for AAPL from $230 to $265. Suva also raised his fiscal 2019 EPS estimates to a well-above consensus range of $13.92 to $14.43 on Apple, which is another holding of Jim Cramer's Action Alerts PLUS charitable trust.
Then, on Tuesday, Bank of America Merrill Lynch analyst Wamsi Mohan reiterated his "Buy" rating on AAPL and reaffirmed his price target of $256 plus his fiscal 2019 EPS estimate of $14.41, already toward the high end of Suva's range. Why? Mohan cited his own firm's survey of 91,000 global consumers. They found that 33% of iPhone users planned to upgrade to the newly released, more expensive models, while this measure of planned loyalty only came to 15% for Samsung. Interesting.
I want you to see that, despite the sloppy moving average convergence divergence (MACD) and lousy money flow, that Relative Strength remains just fine, and this name continues to obey the Pitchfork. Do I want to own AAPL? You bet your tail I do! I'm trying to price my entry. That's another thing. I was hoping to catch a significant discount on a market downturn. So far, that has not happened.
The name reports on Nov. 1. I am already short a plethora of AAPL put options with deeply discounted strikes, a few of these expiring in November. This does provide revenue, buy unless a disaster truly hits, no equity stake.
At least until earnings, I will maintain my discipline. That means that if I can get $220 or cheaper, I will leg in with 12.5% of my intended position size. Or one could...
-Purchase one $225 AAPL Nov 2nd put option (last: $6.07)
-Sell (write) one $220 AAPL Nov 2nd put option (last: $4.25)
In other words, the trader is risking a net $1.82 on these transactions to try to profit to the tune of $3.82 on a post-earnings sell-off that leaves the trader with an equity stake at a net basis of $216.18. Not bad for stock that closed last night at $226.87.