A bearish options trade on Apple as stock struggles to keep up with broader market
Back in late September, I laid out a bearish thesis on Apple and the trade expired last Friday and resulted in a 100% gain. With recent developments and persistent challenges, it is time to re-engage this bearish view. Apple (AAPL) continues to face significant headwinds, with disappointing iPhone 16 sales, growing competition in augmented reality, and underwhelming progress in artificial intelligence (AI). The company’s highly anticipated Apple Intelligence platform has yet to provide meaningful advancements, leaving it trailing competitors like Meta and Microsoft. At the same time, the launch of META’s and SNAP’s AR glasses highlights Apple’s challenges in commercializing its Vision Pro headset, further pressuring its narrative as an innovation leader. China’s slowing economy has weighed heavily on Apple, exacerbating challenges in one of its largest markets. Combined with valuation concerns, AAPL appears increasingly vulnerable to further downside. AAPL has been trading in a tight range between $215 and $232.50 over the past few months. Despite repeated attempts, the stock has failed to break above the $232.50 resistance level. This sideways price action translates to weakening relative strength as it falls further behind the overall market. Weakening momentum indicators suggest AAPL is poised to retest the lower end of its range near $215. A break below this level could lead to further downside in the coming weeks. AAPL currently trades at over 30 times forward earnings, a significant premium compared to the industry average of 19 times. While Apple boasts industry-leading net margins of 24%, its expected EPS growth of 11.6% and revenue growth of 6.9% provide limited justification for this valuation premium. With iPhone sales growth faltering and the lack of a clear catalyst from AI or AR/VR initiatives, AAPL’s premium valuation remains increasingly difficult to sustain. To capitalize on AAPL’s potential downside, consider selling a Dec 27 $230/$240 Call Vertical at a $3.65 credit. This entails: Selling the Dec 27 $230 Call for $5.40 Buy the Dec 27 $240 Call for $1.75 ( Click here to v iew Update Pricing on this Trade in OptionsPlay .) This trade allows you to profit if AAPL remains below $230 by expiration. The maximum potential reward is $365 per contract, with a maximum risk of $635. The breakeven price for this trade is $233.65, offering a favorable risk/reward ratio. With the stock facing mounting challenges and fundamental concerns, this trade provides an opportunity to profit from continued weakness in AAPL while maintaining defined risk. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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