Apple Traders Bet Stock Will Rise 9% to New Record

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Apple Traders Bet Stock Will Rise 9% to New Record

(Please keep in mind that the author of this fundamental analysis is a financial writer and portfolio manager.) He and his clients possess AAPL stock.)

Apple Inc. (AAPL) shares have risen about 20% in the last year, handily outperforming the S&P 500’s 13.5% gain. Options traders expect the stock to gain by up to 9% by the middle of September as the summer months progress. That month is also when Apple usually introduces its new iPhone lineup; reports suggest that there may be as many as four new phones this year.

Since reporting better-than-expected fiscal-third-quarter earnings on May 1, Apple’s stock has risen by approximately 10% to an all-time high. Earnings per share for the quarter were $2.73, which was more than 2% more than expected. Meanwhile, sales exceeded expectations by roughly 40 basis points, coming in at $61.14 billion. The better-than-expected numbers soothed investors’ concerns about slow iPhone sales, causing the stock to surge in response.

AAPL data by YCharts

Options Bulls

The long straddle options strategy, which expires on September 21, is pricing in a 10% gain or fall from the $185 strike price. It positions the stock between $166.50 and $203.50. With 10,300 open call contracts versus just 3,300 open put contracts, the number of calls outnumbers the number of puts by a factor of four.

The $200 strike price calls have around 42,000 contracts available with a cost per contract of approximately $4. To break even, the stock would need to climb to $204 per share. It is a hefty wager of roughly $17 million. The number of open contracts at that strike price has increased by about 68% since May 2, from only 25,000.

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Technical Breakout

Apple shares have technically broken out since its earnings release, with the price reaching an all-time intraday high of almost $190. The stock now has a significant support level in place around $180, which will act as a foundation for the stock moving ahead. Apple’s stock has been on an upward trend for over a year and has provided robust support when pushed. The relative strength index indicates that Apple shares may be a little ahead of themselves, with a rating over 70 indicating an overbought condition and perhaps foreshadowing a short-term fall.

Analysts Are More Hesitant

Analysts are less bullish than traders, with an average price objective of approximately $196, or roughly 6% higher than the current stock price. Analysts have kept their full-year profits expectations basically steady, increasing earnings by less than 1% to $11.55 per share, giving the business a 25.4% increase over previous year. However, sales expectations have been reduced by around 10 basis points to $261.12 billion, representing a 13.9% increase over previous year.

For the time being, options traders remain upbeat. The current stock surge will continue into the summer months: that is, until the next wave of iPhone fears strikes the market.

Michael Kramer is the originator and manager of the actively managed, long-only Thematic Growth Portfolio at Mott Capital Management LLC, a registered investment advisor. Kramer normally purchases and keeps equities for three to five years. Click here to see Kramer’s profile and portfolio holdings. The information offered is only for educational purposes and does not constitute an offer or solicitation to sell or buy any particular stocks, assets, or financial strategies. Unless otherwise specified, investments involve risk and are not guaranteed. Before adopting any of the strategies outlined here, contact with a knowledgeable financial advisor and/or tax expert. The adviser will offer a list of all suggestions made in the previous twelve months upon request. Past performance does not predict future performance.

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