There are stocks. There are bonds. And then there is Apple . The tech behemoth is an asset class. The iPhone maker has a fortress balance sheet, a vice-like grip on its markets, and 20 years after the first iPhone release, still remains cool.
But that doesn't mean the stock can get pushed around on earnings.
Make no mistake, Apple remains a structural outlier in big tech, particularly regarding capital expenditures. While its megacap rivals are currently engaged in a relentless, capital-intensive arms race to outspend one another on infrastructure, Apple's relatively low capex stands out as a testament to its disciplined capital allocation.
Yet, as we approach Monday's earnings, formidable fundamental hurdles remain. While iPhone average selling prices (ASPs) will likely rise, unit shipments are expected to fall under the weight of tougher year-over-year comparisons and recent price hikes. Furthermore, troubling reports are circulating regarding "issues" with Apple's highly anticipated foldable screens. For a device carrying an eye-watering ultra-premium price tag, design or durability problems are unacceptable. It is hard to imagine these manufacturing whispers won't be addressed on the earnings call.
Adding to the top-line friction are potential foreign exchange headwinds, which threaten to eat into international sales growth. Combine these operational risks with Apple's current valuation, and the picture becomes precarious. AAPL now trades at a more than 40% premium to Amazon (AMZN) on a forward P/E basis, and a staggering 60% premium to Alphabet (GOOGL). That kind of multiple demands absolute perfection, and recent weeks have shown exactly what happens to heavily weighted tech names that fail to deliver a flawless quarter, Alphabet and Amazon among them.
This brings us to the options market. Right now, the implied move for Apple by the end of the week is less than $16.50, or under 4.8% of the current stock price, considerably higher than the 3.25% median move over the last four quarters. In a season where earnings reports have punished some of the biggest names in the market, this relatively low options pricing suggests a long premium trade into the print is the most prudent play.
Whether you are looking to hedge a long underlying equity position or simply want to speculate that Apple could become the latest casualty of a demanding earnings season, defining your risk is paramount.
The Trade: Buy the November 6th expiration 345/325 put spread for $5.95.
Important Housekeeping Note: Just two weeks ago , I outlined a moderately bullish setup for Apple using a diagonal call spread risk reversal—specifically, buying the February 360 calls while selling the December 310/375 strangle. The strategy was designed to capture positive carry while maintaining upside exposure. That position is cautiously optimistic, but after observing last week's earnings-related moves and options prices for AAPL expiring at the end of this week, if you didn't take that trade, the landscape heading into this week's quarterly earnings report may require a fresh look with a decidedly more defensive posture.
Disclosures: Tidal owns/holds all the securities mentioned in the article.
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