Will Apple Deliver Fruitful Returns?
This week, Apple is set to release its highly anticipated earnings report for Q2. Analysts are predicting a slight decline of -9.1% in earnings and -4.1% in revenues, with an estimated EPS of 1.43 and expected revenue of $92.84B. This comes after the previous quarter fell short of expectations by 3%.
Leading up to the earnings release, Apple’s stock has already experienced a decline of nearly 2.5%, starting the week at around $170. If you currently hold Apple stock and are concerned about potential price drops, utilising a put spread strategy can offer valuable downside protection. By purchasing a put option at a higher strike price, you can limit potential losses in case the stock price falls. Simultaneously, selling a put option at a lower strike price can help offset some of the associated costs.
Alternatively, if you do not hold Apple stock but hold a bearish view, shorting the stock can expose you to unlimited downside risk. However, by employing a put spread, you can still profit from a downward movement while limiting your risk to the cost of the put spread.
Even if you don’t own Apple stock and simply aim to capitalise on the expected market volatility surrounding the release of Apple’s earnings report, it could serve as a catalyst for further downward movement.
At the end of last week, Apple’s stock was 7.6% below its swing high of $181.32. In 2023, the stock rallied by an impressive 36.79%, bringing it back to levels seen in August 2022. However, after reaching a spike high of 176.15, the shares experienced a 29.5% decline, falling to 124.17.
Despite recent fluctuations, most technical indicators still exhibit a bullish bias, with prices remaining above all daily and weekly EMAs (50 and 200). The longer-term trend remains intact.
While considering the upcoming earnings release, it’s important to be mindful of the possibility of the market following the “buy the rumour, sell the news” pattern. Additionally, bearish divergence in the daily charts may indicate a weakening of the current trend. Furthermore, the price is currently testing the uptrend and has slightly breached the 20 EMA, alongside a downward-pointing RSI. These factors suggest the market might be seeking a reason to sell, potentially due to overly high expectations for Apple’s earnings.
Long Put Spread
Protection From A Downwards Movement
Net cost of ($216 x5 $1,080) ($216 per 1 lot of 100 shares)
Max Profit: $3,920
Max loss: $1,080