The Apple sell-off is a buying opportunity into earnings, says trader

Apple is seeing red.

The world's largest company is seeing its worst month since September, and is one of only a handful of Dow Jones industrial average names trading in negative territory this year.

But, its disappointments could be coming to an end, says Stacey Gilbert, head of derivative strategy at Susquehanna Capital Group. The options market suggests a far sunnier outlook than the past month of market activity has implied.

"With as much uncertainty and with the year-to-date performance I would have expected the implied move ahead of earnings to be higher than normal," Gilbert told CNBC's "Trading Nation" on Monday.

The options market is implying a 4 percent move on earnings when Apple reports, which is scheduled for Thursday. Gilbert says that level is typical for Apple, a surprise after a number of analysts raised concerns over iPhone demand in recent weeks.

The implied move is based on the stock's straddle, the range of the money put and call. That span gives an idea of how large a swing investors anticipate on a market-moving event such as earnings.

Such an implied move so close to its historical average suggests that sentiment is more bullish and that the risk to the downside is lower than normal. At the moment, Gilbert is seeing investors sell the $165 strike-puts and buy the $170 strike-calls.

"While the stock may look bearish, the options definitely are bullish," added Gilbert.

Ari Wald, head of technical analysis at Oppenheimer, also sees upside ahead for Apple in a recovery from its recent sell-off.

"We think downside is somewhat limited as it stands," said Wald. "We are of the belief that corrections into a rising 200-day moving average are corrections to buy. ... We think it continues to do well over the coming months."

Wald sees technical support around the $166 level where it currently trades.

Apple shares are down 2 percent this year and have spent just over half of the trading days this year in the red.

The Technology Select Sector SPDR ETF is up more than 6 percent in the same period, led by gains in Seagate Technology, Advanced Micro Devices and Nvidia.

Analysts expect an upbeat quarter for Apple even on expected weakness in iPhone sales, its biggest contributor to the top line. The company has reportedly cut iPhone X production targets in half for its first quarter, the Nikkei Asian Review said Monday. A week ago, J.P. Morgan said it expects weaker iPhone X demand.

For Apple's fiscal first quarter, analysts surveyed by FactSet anticipate a 15 percent increase in quarterly earnings and a 12 percent gain in sales over the three months to December. Apple has not come in below analysts' estimates since its March quarter in 2016.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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