Apple (AAPL - Get Report) has been rough on many of you. How do I know? Simple. A number of you tell me. Jim Cramer often says about this name... "Own it, don't trade it." I have often forgone Jim's advice, and done both. Like Amazon (AMZN - Get Report) , where I have admittedly traded the name very well outside of my core position, I have attempted to do the same with Apple. Those results have not been in line with what I have achieved with Amazon. Fortunately, one thing that I have done well, is reduce net basis costs in the name through the sale of both put and calls.
Still, the last trade I made in the name left this trader with an unfortunate impact on net basis, but fortunately a reduced core position in terms of size. The bad news? My net basis is still just above $187 (I have not bothered to yet factor in dividend payments, so this may be just a smidge lower). The good news, I am down to one quarter of what I consider to be my intended allocation in terms of share size for the name.
Last week, Morgan Stanley's Katy Huberty (highly respected) reduced her target for AAPL to $236 from $253. She did however maintain her overweight rating. Huberty sees growth in performance for the firm's services segment as well as in wearables as able to counter an expected decline in iPhone sales. This is exactly why I am in the name. Subscription services. This is also precisely why I have been pounding the table all year on maintaining high cash levels. Dry powder. Obviously a trade condition worst case scenario is at least partially being priced in here. Lower hardware sales had to be expected at some point, but this has never been a growth story. The name trades at 11 times forward looking earnings, and has been comparably cheap to the market throughout this decline.
Funny thing happened over the weekend. My bride asked me for one of the new iPhones for Christmas. Her current phone is a little tired, but it works. Think she's the only one? You never know, but I doubt it.
I am reevaluating AAPL as if I were flat the name. This is my work.
What I see is a trend whose cycle began way back in mid-2016. Everything has now seemingly gone wrong. The Pitchfork broke. My Raff Regression channel broke. Money Flow is sloppy. Relative strength has hovered close to oversold levels for the past few weeks, and the daily MACD really took it on the nose.
What's left is our old pal Fibonacci. That model offers the likelihood of help at $160 should the Regression model not be quickly regained. That is where I am most apt to plant my flag, and fix my bayonet.
AAPL Trade Idea (minimal lots)
Risk controlled trade idea for those who feel that Apple may experience a timed Santa Clause rally, and are willing to make a stand at Fibonacci support levels. Apple reports quarterly results on January 30th.
Santa Bull Call Spread
-Purchase one January 4th $170 call (last: $5.80)
-Sale of one January 4th $180 call (last: $2.11)
Note: Trader risks $3.69 in an effort to win back a ten spot. Potential profit maxes at $6.31.
Earnings Related Exposure Play
-Sale of one February $160 put (last $6.85)
-Sale of one February $140 put (last $2.08)
Note: Trader pockets $8.93 up front. If AAPL shares fall below $160 by expiration, this trader will be long or add 100 shares at a net basis of $153.15, or in a worst case if the shares fall below $140, 200 shares at a net basis of $145.54.
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(A longer version of this column appeared at 8:17 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts throughout the market day.)