BY MARK SEBASTIAN
February 8, 2024
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
With all the giants reporting except NVDA, we decided to take a look at what has been the most consistently huge of these names….AAPL. while it is currently only the second biggest company in the world…it has hung around 1 or 2 for what seems like 10 years.
Is it time to buy this on its ‘lows’ or call it a day here…
APPLE INC. (Ticker: AAPL)
The current excitement around AAPL is its head set. The Apple Vision Pro. This is the most exciting thing AAPL has had since the AAPL watch…
To put this in perspective. AAPL doesn’t even break aapl watch sales into their own category like the Mac or the Iphone. Add to this the money pit that the Meta Quest has been for META so far and the ability to add to the bottom line for Apple anytime in the next 3 years is pretty darn dubious.
What Apple has become is a consistent money maker…the company earns a lot of money….Its revenue does not grow very much, it grew for the 1st time in over a year last quarter, but it does make a lot of money.
This is where the question of valuation comes in.
Apple currently has a PE of about 29.20…that is the PE of a company that is supposed to grow. AAPL seems more like a cable company back in 2005 than it does a high growth company.
It makes a lot of money
Has consistent numbers
Produces a lot of cash
Doesn’t see huge growth
Does this mean that AAPL is going to go down…no…but I do not think the company is necessarily going to go up.
Other than being the company managers go to when they have no place to put cash…there is almost no real lines of growth…let alone drastic growth here, unless I am completely miss reading the Vision Pro…which I doubt I am.
The company could sit around this valuation for a while and let the earnings grow into it eventually landing at a PE below 20.
The fear I have is this: What if sales, especially in China slip. Where does that put the stock…and they also have risk around the watch with the legal actions going on.
I see more risk to the downside than opportunities for the upside.
I have a couple of interesting ideas I cannot wait to pitch on Monday….
In the short term, Apple (Ticker: AAPL) has a bullish chart.
After opening lower on the earnings report AAPL had a massive reversal creating a very long green bullish candle:
Once the stock clears $191, it will test that $200 level for a third time which will be some formidable resistance.
Once $200 is breached next resistance comes in at $220.
Near term support is $180.80 which will keep AAPL in the trading range it has been trading in since May 2023.
Below there support lies at $174.
Although AAPL is looking bullish here, I would not hop in until it closes over $191.
Apple Inc (Ticker: AAPL) volatility is hitting lows
While AMD should be the stock of the future or at least one of them, right now implied volatility is dead in the middle of the range. Earnings came out and after the huge rally in January they were not enough to propel AMD above $180.
Dead in the middle of the range is an Iron Condor (IC) style trade. Now that Big Tech is out and for the most part holding up at higher levels the IC setup should be flat to short delta. That is I don’t really want a long exposure right away with the stock up here and not really rallying anymore.
Note below the 90 day realized volatility is around 44% Both 30 day and 60 day IVs around the same level but far above 6 month lows.
When you see below AAPL is range bound with low implied volatility. This usually is a good call or put calendar recipe. A rising market might take AAPL with it or rotation out to other cheaper names will keep AAPL on the ropes. Either way it is hard to expect a hard move in the short term.
3 month AAPL chart with 1 day candles, IV30 in red on the chart below
This is also an area where implied volatility can make new lows. Anything here would be spread like in nature because if AAPL just settles, IV goes to the low teens. On the flip side, AAPL realized volatility has been relatively high so those forces should slow the decline in IV a bit.
I am leaning toward a call calendar near the money but we will set it up on Monday.
The Option Pit Team…
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Questions about anything? Leave a comment below!
Mark Sebastian
Founder & CEO, Option Pit
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