DailyPlay – Opening Trade (AAPL) – August 6, 2024

AAPL Bearish Opening Trade Signal

Investment Rationale

With the VIX’s extreme reading yesterday, our view is that markets will likely find a trading bottom over the next few weeks, however for volatility to stick around. Yesterday’s price action where all 11 sectors were in the red suggests that the panic selling may be overdone but to still potentially expect downside even if there are pockets of optimism over the next few trading weeks. We believe it is better to take a neutral to bearish approach by collecting premium selling options. For this trade we will use AAPL as a proxy for the overall market and tech sector. 

Technical Analysis

AAPL’s intraday bounce yesterday took it just shy of its key $210 resistance level, we are looking for a potential reversal lower from this important resistance. Our downside target is $197 initially but as low as $175 (gap fill level) if panic selling does take over again.

AAPL – Daily

Fundamental Analysis

AAPL remains on our overvalued list at 28x forward earnings (33% premium to its industry) while expecting EPS growth of only 10% vs. 14.2% for the industry. And revenue growth of only 5.4% vs. 8.7% for its industry. The only metric that AAPL excels at is its Net Margins of 26.4% vs. only 12.5% for its industry. However, a 33% premium valuation is hard to swallow when growth rates are substantially lower than its peers, even if it is more profitable.  

Trade Details

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish Credit Spread

Details: Sell to Open 2 AAPL Sept 20th $210/$230 Call Vertical Spreads $7.72 Credit per Contract.

Total Risk: This trade has a max risk of $2,456 (2 Contracts x $1,228) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,228 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on a stock that recently turned bearish and is expected to continue lower.

1M/6M Trends: Bearish/Neutral

Relative Strength: 7/10

OptionsPlay Score: 104

Stop Loss: @ $15.44 Debit (100% loss to the value of premium)

View AAPL Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

PLEASE NOTE that these prices are based on Monday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View AAPL Trade