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Trade Apple Inc. Stock for a Little Holiday Cheer

The holiday shopping season is in full swing, and that means shoppers will be filling their carts with lots of shiny new phones, tablets, PCs and other assorted gadgets. So, while I have my reservations about Apple Inc.’s (NASDAQ:AAPL) longer-term outlook, now is not the time to bet against AAPL stock as the company is a key purveyor of sought-after holiday gifts.

Fundamentally, AAPL’s stock price is riding a wealth of positive sentiment it gained from its most recent quarterly earnings report. iPhone sales were stronger than expected, while Macs and iPads saw a resurgence in demand. Apple has also addressed production issues for the iPhone X to ensure that shoppers have plenty of the hottest new iPhone to fill their stockings.

That’s not to say that there still aren’t production concerns. The Apple HomePod will not make it to shelves in time for the holiday shopping season, leaving Amazon.com, Inc.’s (NASDAQ:AMZN) Echo and Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Home to dominate the market space. Furthermore, if you’re looking for a more stable long-term bet, Microsoft Corporation (NASDAQ:MSFT) has proven considerably more reliable of late than AAPL stock.

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AAPL Stock
AAPL Stock


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That said, sentiment remains as strong as ever on AAPL stock. For instance, Thomson/First Call reports that 33 of the 45 analysts following AAPL stock rate the shares a “buy” or better, with no “sell” ratings at all.

Furthermore, the consensus 12-month price target rests at $187.74 — a premium of only about 7.3% to AAPL’s current trading range.

There is still room for a bit more “holiday cheer” for Apple, in the form of both upgrades and price-target increases, especially if sales remain robust throughout the holiday shopping season.

On the options front, AAPL stock speculators are also heavily bullish on the shares. Currently, the December put/call open interest ratio is at 0.55, with calls nearly doubling puts among front-month options. Peak call OI totals more than 56,000 contracts at the out-of-the-money $180 strike, with about 48,000 contracts open at the just overhead Dec $175 call.

Turning to December implieds, options traders are pricing in a potential move of about 3% for AAPL stock through expiration. This places the upper bound at $180 and the lower bound at roughly $170. In short, both the Dec $175 and $180 call strikes are within AAPL stock’s expected move.

Two Trades for AAPL Stock

Call Spread: Traders looking to bet on a strong holiday showing for AAPL stock might want to consider a Dec $177.50/$180 bull call spread. At last check, this spread was offered at 69 cents, or $69 per pair of contracts. Breakeven lies at $178.19, while a maximum profit of $1.81, or $181-per-pair-of-contracts — a potential return of 162% — is possible if AAPL stock closes at or above $180 when December options expire.

Put Sell: If you’re looking for a more conservative play on the stock, then a Dec $167.50 put sell might be a way to capitalize on AAPL’s technical support in the $170 region. At last check, this put was bid at 61 cents, or $61 per contract.

As always, you keep the premium received as long as AAPL stock closes above $167.50 when December options expire. The downside is that should AAPL trade below $167.50 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $167.50-per-share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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