This week’s Apple trading strategies (1/27-1/31)

A place for Apple traders and investors to share their best ideas—Q1 2020 earnings week edition.

To get things rolling, two videos: 1) Wedbush’s Daniel Ives on CNBC Friday promoting his new Street-high $400 target and his theory of the 5G iPhone “supercycle…”

2) Later that day, two journalists—WSJ’s Joanna Sterne and Fast Company’s Bradley Tusk—sprinkling cold water on the near-term benefits to consumers of 5G iPhones…

Chart: Apple had a better week than the Dow…

apple trading strategies 1-27

Disclaimer: Having never owned or traded Apple, I have nothing to add. Don’t blame me if you drain your IRA doing something you read about here.

See also: Last week’s Apple trading strategies

7 Comments

  1. Jerry Doyle said:
    My take: To reiterate, Apple is in the 26 P/E range because of optimism surrounding 5G, the solid holiday success of the new iPhone 11, the blow-out sales of wearables along with other contributing factors such as the recently signed trade agreement between the US & China. Analysts’ mindset adjustment of understanding the “long-term upside” of Apple’s Services component now will extend Apple’s P/E to the next higher levels of the low 30s. (PG, at $125 has a P/E 79).

    Big investors are purchasing additional shares of Apple. Small investors want more shares. Everyone wants more shares. The WSJ reported Friday that Apple TV+ already has racked-up more subscribers (33.6M) than Disney+ (23.2M) and Hulu (31.8). It’s that 1B installed base (in your pockets ya’ll) as Oprah Winfrey stated. Subscribers are not going to jump ship at the end of one year. Also, remember that Disney+ gave out one year subscriptions through Verizon.

    I am with Daniel Ives because this is an analyst who understands that Apple is a company with a powerful combination of hardware, software, and long-term-upside to Services driving the price target forward with higher multiples. Also, Apple’s hardware is performing similarly to a services business through consumer repeatability of upgrading every few years in hardware and wearables.

    5
    January 26, 2020
  2. Gregg Thurman said:
    In thinking about my strategy for this week I looked back to see how AAPL has been performing of late.

    We all know that since December 3, 2019, AAPL has rallied from an intraday low of $256.29 to January 21, 2020 intraday high of $323.33, a distance of $67.04 (26.16%).

    There are many ways to benefit from AAPL’s rise and fall. My preferred method is buying $2.50 Call Spreads at Monday’s intraday low for the subsequent Friday expiry (one week). with the goal of netting 15% – 20% ROI. During the past 7 weeks, using this strategy I have made 32.80%, 6.55%, 11.26%,43.43%, 28.94%, 30.68%, and 37.41% respectively from those weekly trades.

    To assist me I have written a little algorithm that predicts the following days’ low. It isn’t always as accurate as the last 3 weeks have been, but the average error of those weeks has been 4¢, 10¢ and 16¢. This is a big help is waiting for the intraday low.

    The most important element of my strategy is that AAPL Close on Friday above the top leg of the Call Spread my algorithms have indicated that I buy (always an in-the-money purchase). To that end, I have looked at the degree during this run that AAPL has exceeded the top leg at Friday’s Closing print. For the last eight weeks, that gap has averaged $11.52, well above my maximum value point. But that’s only 8 weeks and only includes some rather exciting runs.

    What about a longer period that includes all of AAPL’s ups and downs? Going all the way back to August 29, 2016, AAPL’s Monday indicated Call Spread top leg to Friday’s Closing print has averaged (wait for it) $4.58.

    What about earnings reports week performance? Going back to the same August 29, 2016 starting point (including all the ups and downs in that period) the average gain from Monday’s indicator to Friday’s Closing print averaged +$6.42.

    But what about the coronavirus threat? I may be underestimating that threat but I note that AAPL outperformed the Indexes after the threat became apparent.

    So, taking this all in on Friday (before the coronavirus threat reaction) I opened a position in JAN 31 $320/$322.50 Call Spreads (deviating from my in-the-money strategy) at $1.30 (92% ROI for the week if successful). To be 100% successful (maximum gain) AAPL needs to Close on Friday above $322.50. Breakeven is $321.30 (plus fees).

    As it turns out I bought too early and am currently down ~$18 per contract (~13.8%). But like everyone else playing an earnings beat and strong guidance for the March quarter I remain confident that my strategy will pay off. After all, the average (good and bad included) earnings week gain applied to Friday’s Closing print is $324.73. We’ll see.

    1
    January 26, 2020
  3. Fred Stein said:
    While 5G is over-hyped short term, Apple will sell more 1B iPhone over the next five years . That is just business as usual. The big upside in Apple is what we don’t know or can’t measure very well.

    In financial services alone, Apple has added new services and new users each year. Long term, that’s a monster. Health services could add $100B or more to Apple’s revenue over some very long term.

    Meanwhile, Apple’s chip design team relentlessly expands Apple technology lead in SmartPhones and wearables. For perspective, Apple launched the Apple II in 1977, and Macs are still a great business. In SmartPhones and wearables, Apple owns much more of the value stack.

    1
    January 26, 2020
    • Jerry Doyle said:
      @Fred Stein: “…The big upside in Apple is what we don’t know or can’t measure very well.”

      You are correct with that statement. That statement applies to most all Apple Services component.

      You denote that Apple has added new financial services and new users each year. It’s that installed base that is the driving engine. Let’s take AMEX, for example. AMEX issued its first credit card in the early 1950s. The latest statistics project that AMEX will have 70M cardholders (worldwide) by 2022. Apple has not told us how many Apple cardholders are on record. Something tells me that what it took AMEX 70 years to achieve in cardholder numbers, Apple already has achieved in four months. MC is projected in 2022 to have 260M cardholders worldwide and VISA is projected to have 340M. Apple is poised nicely with an installed base of 1B to be competitive with all these companies in a matter of months where it took all of them, over half a century. You are correct that, “…Long (or short) term, that’s a monster!”

      We already know that Tim C says Apple’s legacy will be in “Health Services.” The Revenue Stream from this industry is humongous. We know that with the advancements in medical science, along with state-of-the-art rehabilitation technologies with the proliferation of new designer drugs that people are living longer and more productive lifestyles; and, they desire to remain independent living mostly in their homes. The Apple Watch will play an integral role in this process, I truly believe. And as you denoted, we know that Apple is making great strides in producing its own chips. That in-house design will lead to lower costs with higher margins.

      It will be that “long-term upside” of Apple’s Services component that will drive the stock price and P/E ratio to the next higher levels while Apple’s powerful combination of hardware and software drives those services with continued increased revenues. Just think! Apple, Inc. first started as a company April 1, 1976. It took 42 years for the company to reach a market cap of 1T. It will take two years to reach another 1T. That is the law of large numbers!

      1
      January 26, 2020
      • Fred Stein said:
        Ha, I love your take on LOLN. Indeed very few see Apple’s ability to sustain growth through business and technology innovation. And almost no one see chip design as “software”. Apple sends giant files, to TSMC who prints the designs on silicon.

        0
        January 26, 2020

Leave a Reply