BY MARK SEBASTIAN
May 5, 2024
TRADE IDEA
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.
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Hey Trader,
On Thursday the Second largest company in the world reports. AAPL, the phone maker of all phones is going to report on earnings. Its the last MAJOR earnings until NVDA at the end of May. Is this one a buy or a sell ahead or earnings….lets break it down.
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Apple (Ticker: AAPL)
AAPL just reported earnings. While the earnings rake was large….the declining sales would normally be a major issue for an investor.
But AAPL is sitting on a ton of cash….why not buy back stock….why not 110 BILLION dollars worth….
I think this is disastrous long term. Here we have META, MSFT, GOOGL pouring investments into AI and growing. Meanwhile AAPL is buying back stock.
This smells more and more like IBM circa 2013…remember that? IBM was not investing in its businesses (despite being a decade ahead on AI) and instead was buying back stock.
The CFO was buying back stock in IBM at 215 dollars a share….it has never been that high since.
I don’t need to dig into the stats to see that AAPL is over…now…they aren’t going to go out of business…they aren’t ‘toast’…but the stock is no longer interesting to me.
The company doesn’t innovate….they don’t grow…they just sell the stuff they are making…
Near term…Maybe AAPL goes up (ill let Licia tell you that)….But long term…AAPL is in its December….not its May.
-Mark
Now that Apple (Ticker: AAPL) has reported, the stock is trading $183.77 and is sitting right at the top of the smaller pitchfork:
Watch for the stock to consolidate here after the gap for a few sessions and then rally and trade back up to the previous highs near $200.
That takes it to the top of the larger pitchfork.
If the gap does not hold, support is down at $175.
I am bullish.
Licia
Does the buy back affect volatility?
The simple answer is yes and no. The AAPL buy back would put a floor under the stock price. That would help stabilize the stock so there should be less volatility going forward. The market itself will cause volatility but that will not come from AAPL now that earnings are out. New AI initiatives might add some upside but I agree with Mark, Tim Cook is not leading the new product charge.
Into earnings, AAPL implied volatility (IV) was at a 4 month high and it will not stay there. I think it is very possible after earnings drift to a year lows.
But there is a fly in the ointment.
1 year AAPL chart with 30 Day IV and 20 day HV
Note the 20 day historical volatility (HV) in AAPL, the blue line. Prior to earnings, that number was very high, near 2024 highs and signs the stock was really suffering a spiral. The big buyback bailed it out. The reasons for that volatility are now muted. AAPL should make a good sale via Iron Condor or similar trade. I would set up a just short delta via Iron Condor and be ready to adjust. Some air should come out post earnings.
-AG
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Mark Sebastian
Founder & CEO, Option Pit
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