Option Trade 
Apple Inc. (NASDAQ:AAPL) Calls Sunday, July 19, 2015

**OPTION TRADE: Buy the AAPL Oct 2015 130.000 call (AAPL151016C00130000) at or under $5.75. Place a protective stop loss at $2.30, and a pre-determined sell at $11.50.

by Ian Harvey

July 19, 2015

Introduction

Apple Inc. (NASDAQ: AAPL), a company that designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications, is scheduled to report fiscal third-quarter earnings Tuesday and is expected to post profit per share of $1.80 on revenue of $49.22 billion, according to analysts polled by Thomson Reuters.

The Apple magic appears to be back. Over the past five sessions, the tech giant has risen 7 percent. And according to one technician, there's a lot more upside ahead.

This remains the world’s biggest and boldest technology company. Apple has stayed in the limelight with the release of the Apple Watch, and while not generating the kind of in-store mania the iPhone 6 release did, reports indicate that 2.5 million orders for the new wearable device were taken by the company in the United States alone, and the number continues to grow.

Many Wall Street analysts recommended staying long the stock into second-quarter earnings. They see strong continued iPhone 6 sales and numerous catalysts on the horizon. The company is also widening its lead over Google in the app marketplace. In fact, revenue at Apple’s global App Store was about 70% higher than on Google Play in the first quarter, compared with about a 60% advantage last year.

Technical Details

The chart looks very bullish, with a very-well-defined uptrend which remains intact.

In the short term, many expect Apple to rise to $144, and the stock could ultimately reach $160. If this plays out, Apple would easily surpass its all-time high of $134.

Technically, the latest good sign came last week, as can be witnessed in the chart below, as Apple reversed its losses in what is called a "bullish hammer." This means the stock fell significantly over the course of the week, but rallied back from the lows, as illustrated in the weekly chart.

This is typical of how Apple moves —where there are periods of sideways consolidation, punctuated by very sharp advances coming out of that pattern.

Shares closed trading on Friday at $129.62. The consensus price target is $149.28. The stock has a 52-week trading range of $93.02 to $134.54.

The stock’s 50-day moving average is $127.17 and its 200-day moving average is $124.21.

The company has a market cap of $746.74 billion and a P/E ratio of 16.11.

Earnings

Previous Earnings

Apple last issued its quarterly earnings data on Monday, April 27th. The iPhone maker reported $2.33 EPS for the quarter, beating the Thomson Reuters consensus estimate of $2.16 by $0.17. The company had revenue of $58.01 billion for the quarter, compared to the consensus estimate of $55.53 billion.

During the same quarter in the prior year, the company posted $11.62 earnings per share. The company’s quarterly revenue was up 24.4% on a year-over-year basis. On average, analysts expect Apple to post $9.07 EPS for the current fiscal year and $9.77 EPS for the next fiscal year.

Future Earnings

Oppenheimer shed light on Apple’s upcoming earnings, saying that it expects the iPhone maker to post upbeat quarterly results on the back of iPhone strength. In the prior two quarters, Apple sold a combined 135.5 million iPhone units, well above consensus estimates.

Oppenheimer also suggested that Apple is likely to beat iPhone shipment estimates this quarter, given that Android-based smartphone shipments have come in lower than expected. In fact, the firm sees the beginning of the end of Android smartphones, as it believes that these devices lack a cohesive platform.

In view of the recent Chinese stock market crash, Oppenheimer outlined that this would not substantially impact Apple’s growth outlook in China. The firm believes that Apple still has room for further penetration in China. Furthermore, the firm thinks that Apple has not yet completed its dominance over high-end Android devices in other developed markets.

Since its launch in April, Apple Watch has been subject to mixed reviews. A recent report by Slice intelligence stated that Apple Watch sales have declined 90% since its launch week. Oppenheimer believes that initial sales of Apple Watch in the first 12-18 months would have no material impact on its long-term bullish view on the device. The firm thinks that Apple Watch represents the next level of mobile computing. Oppenheimer’s FY15 Apple Watch shipment estimate is six million, compared to the Street’s nine million units forecast.

In light of strong iPhone sales, the firm raised its 3QFY15 revenue and EPS estimates from $47.4 billion and $1.66 to $48.7 billion and $1.73. Along with this, the firm also increased its FY15 revenue and EPS forecast from $231 billion and $8.94 to $232.4 billion and $9.01, respectively.

Why Apple?

Besides those earnings drivers mentioned above, the recent resurrection of the iPod, with improved graphics, Wi-Fi connectivity and a camera, as well as a new line of colors for all its iPod products, is certainly a winner.

Apple is trying to bring back iPod popularity by turning the gadgets, which have faltered in sales year over year, into "prephones for preteens." If the efforts are successful, iPods could do even better than the company's smartwatch, and that market is much, much larger than the Apple Watch market.

When looking at the chart below, it is obvious that resistance becomes support and support becomes resistance.

As can be seen in the chart above, Apple reversed so quickly and punished the short-sellers so quickly and so severely, that there is little chance that they will be back for a little while.

The level of $120 was a ceiling of resistance late last year, and now it has become the floor of support for the stock at the levels where it is currently trading. And while Apple has had some great gains this year, many investors were scared when the stock dropped to $120 on July 9.

The relative strength index has now given a buy signal.

Analysts Opinions

Oppenheimer maintained an Outperform rating with a $155 price target on Apple shares.

The firm said….

“We expect another strong quarter and would be buyers in front of the quarter. We see fears as overblown and expect over the next two quarters Street numbers will increase significantly.”

Evercore ISI’s technical analyst Rich Ross thinks that Apple might touch its all-time high share price in the short term and further thinks that the stock could reach $160. Given Apple’s recent performance, there is a high chance that such a scenario could take place.

Bernstein analyst Toni Sacconaghi, Jr notes that despite investor concerns with regards to the recent Chinese stock market dip, coupled with foreign exchange headwinds that have resulted in an increase in average selling price, in the iPhone, demand for the product continues to remain strong.

Bernstein expects Apple’s revenues to expand by 30% YoY to $58.7 billion, very much in line with a consensus estimate of $48.9 billion. The revenue estimate reflects a sequential decline of 16.1% that has been consistent since the last three years. On this revenue figure, Bernstein forecasts that Apple will earn a profit of $1.81 per share, compared to a consensus estimate of $1.78 per share. Bernstein currently has an Outperform rating and a price target of $142 on Apple’s stock.

Investment firm UBS on the other hand, deems both Bernstein’s and the Street’s estimates as highly conservative. UBS in a research note out Friday predicted that Apple’s revenue for the quarter would amount to $52.5 billion, with EPS coming in at $2 per share. The crux of UBS’s thesis on Apple was that the majority of analysts may be underestimating the average selling price during the three months ending on June 30. UBS’s Evidence Lab iPhone Monitor and the Consumer Intelligence Research Partners (CRIP) survey indicate an Average Selling Price of $660 for iPhone, versus $636 projected by all others. UBS currently has a Buy rating and a price target of $150 on Apple’s stock.

Pacific Crest weighed in on Apple Inc.’s upcoming results for third quarter of fiscal 2015 (3QFY15), and reiterated a Sector Weight rating, as disclosed in a research note published on Friday. The firm believes that there is limited downside to Apple’s 3QFY15 results, given the strong market share, and stable fundamentals.

The company has also been the subject of a number of other research reports:-

• Analysts at Stifel Nicolaus reiterated a “buy” rating and set a $150.00 price target on shares of Apple in a research note on Friday.

• Analysts at JPMorgan Chase & Co. reiterated a “buy” rating on shares of Apple in a research note on Friday. Analysts at Cantor Fitzgerald reiterated a “buy” rating on shares of Apple in a research note on Tuesday.

• Analysts at Mizuho reiterated a “buy” rating and set a $125.00 price target on shares of Apple in a research note on Monday.

• Finally, analysts at FBR & Co. reiterated an “outperform” rating and set a $185.00 price target on shares of Apple in a research note on Monday.

According to the latest analyst polls on Bloomberg, 40 analysts have a Buy rating on the stock, 13 have a Hold rating with only two rating it a Sell. The average 12 month price target on Apple’s stock is $149.47.

Conclusion

Apple shares typically get a boost after the company reports earnings, especially when Apple beats expectations, which it usually does.

Over the last 10 years, Apple has missed earnings expectations just three times and beat 37 times. Analysis from Kensho, a data analytics platform for financial markets, shows that since 2005, Apple shares have risen 1.2 percent on average in the week following earnings. Apple shares go positive 70 percent of the time.

Therefore, based on the facts above the following option trade is recommended…..


**OPTION TRADE: Buy the AAPL Oct 2015 130.000 call (AAPL151016C00130000) at or under $5.75. Place a protective stop loss at $2.30, and a pre-determined sell at $11.50.



”Success is simple. Do what's right, the right way, at the right time.”


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Options traders are not successful because they win.
Options traders win because they are successful.



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