A prudent way to bet on a bounce in Apple following its post-earnings decline

Published Fri, Nov 3 202310:29 AM EDTUpdated Fri, Nov 3 202310:44 AM EDT

Apple topped expectations in its earnings report release Thursday afternoon in the face of its fourth consecutive quarter of declining revenue as an uncertain macroeconomic outlook questions global consumer demand for their products. Profit takers pushed the stock lower 3% in extended trading after Apple signaled the company may not return to growth in the holiday quarter. Apple has kept up with the Nasdaq 100's outperforming year and continues to deliver alpha per the 3 year look back. Apple was by far the most profitable American company last year, with its $99.8 billion in net income, about 38% higher than the next most profitable firm listed on the S & P 500, Microsoft. The tech giant reported $383.29 billion in sales for the full fiscal year, down about 3% from the prior year. Quarterly revenue declined less than 1% in the September quarter. The results suggest that Apple is facing a deceleration in China. The government there has imposed bans on U.S. technology in some workplaces. However, Apple's services business was a bright spot. Apple recorded $22.31 billion in services revenue, outpacing analyst expectations and increasing more than 16% from a year earlier. As Apple attempts to pull out of its longest sales slowdown in decades, I remain optimistic on its 2023 trajectory as the stock is up nearly 40% year-to-date but, I realize that Apple is enduring short-term growth issues. As I approach a strategy, I want to define my risk but also express my view that Apple may move higher from here, but the Magnificent Seven and original tech darling may struggle in reclaiming its $3 trillion market cap by year's end. Selling a call spread will help me in capturing my view as long as Apple does not move up more than 10% from here. After U.S. job growth slowed sharply in October, markets may finish out the week on a continued high note as the new month of November has caught some underinvested, money managers on the sideline. (S & P 500 is +3% since the start of the month.) A bear call Spread The option strategy that I will utilize is selling a call spread better known as a bear call spread . This credit spread can be established by selling an out-of-the-money call and using the premium collected in writing that call option to buy a further OTM call. The same expiration will be used for both call options. I am leaning on previous 2023 price action and the chart technicals to assist in selecting the strike prices for this call spread. AAPL YTD mountain Apple, YTD A bear call spread is a two-part options strategy that involves selling a call option and collecting option premium upfront, and then simultaneously buying a second call option with the same expiration date yet at a higher strike price. Since the strike of the call sold (the short call leg) is lower than the strike for the call purchased (the long call leg), the amount of option premium collected in the first leg is always greater than the cost paid in the second leg creating a credit spread scenario. Selling a call spread in APPL: Looking to sell the regular expiration December $180 call for $2.90 (which is roughly 10% higher from 11/02/23 close) Looking to buy the regular expiration December $190 call for $0.60 The result in the sale of the call and the purchase of the higher strike call results in a credit spread collecting $2.30 ($230 will be collected per one spread sold) The max loss is $7.70 on this call spread if Apple settles back above $190 where it was trading in July 2023. This call spread allows a trader to capture premium while also not believing that the stock will rise more than 10% and the max loss is capped at $770. If you believe that Apple will vault back above $190 and finish 2023 on an even stronger note, feel free to take the other side of this trade. DISCLOSURES: (Long AAPL shares and Short AAPL call spread) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.