Apple Partners with OpenAI, Will the Stock Soar?
13-06-2024
In a Trade Insight dated 26th March 2024 we noted that Apple was likely to integrate AI into its handsets.
Despite its earlier flirtation with Google’s Gemini AI technology, earlier this week Apple finally outlined its strategy for implementing generative AI across its product offerings. Instead of building its own in-house generative AI models as its tech rivals have done, it has opted to partner with industry trailblazer OpenAI.
This has been received very positively by the market. Before this announcement, Apple’s share price had lagged behind the parabolic returns seen amongst many of its tech peers, as prior to Monday’s event the unveiling of each generation of iPhone had increasingly struggled to inspire consumers to upgrade their handsets.
The latest on-device AI models quash any user concerns over privacy in what is now a hallmark of the Apple ecosystem; and its further optionable integration with OpenAI’s ChatGPT (the current market leading generative AI Large Language Model) will spur demand for consumers to transition away from legacy devices in favour of the modern intelligent devices set to be released.
If you believe that a future smartphone supercycle is on the horizon, possibly driving a new period of exponential growth for Apple, then you could consider buying a long dated out of the money call spread.
Call Spread
Trade Idea
Buy a Call Spread
AAPL Cash Price = 215.70 (as of 12/06/2024 @ time of writing)
Buy: 1 (number of contracts) x $21.00 (contract price) x 100 (contract size) = $2100 debit
Sell: 1 (number of contracts) x $6.00 (contract price) x 100 (contract size) = $600 credit
Total consideration of $1,500 (excl. fees + commissions)
Historically, AAPL has risen by >56% since June 2022.
A further 48% increase on the current share price to $320.00 by 18-Jun-2026 expiry, would yield a 366% return on your initial investment, valuing the call spread at $7,000 (320 – 250 x 100), yielding a maximum profit of $5,500 ($7000 – $1500) (excl. fees + commissions)
A rise to $320 in the underlying share price would yield a 7.5x greater return on the call spread than buying shares outright.
Maximum loss $1,500 (excl. fees + commissions)
Defined risk profile, maximum loss is equal to the net option premium paid.
Lower initial outlay in exchange for a capped maximum profit.
Breakeven if underlying share AAPL = $265 @ Expiry 18-Jun-2026 (strike price + net premium paid)
The contents of this article are for general information purposes only. Nothing in this article constitutes advice to any person and any investments and/or investment services referred to therein may not be suitable for all investors. If you’re unsure whether any investment is right for you, you should contact an independent financial adviser. For more information, please see Terms and Conditions | OptionsDesk.
Written By
