Option Trade
 Apple Inc. (NASDAQ:AAPL) Calls
Monday, July 31, 2017

** OPTION TRADE: Buy the AAPL SEPT 15 2017 155.000 CALL at approximately $2.80. Place a pre-determined sell at $5.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.10.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading System

by Ian Harvey   

Please Note: Apple trade was mentioned in “Earnings Predictions for the Week Beginning July 31, 2017”

Tech heavyweight 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, will report earnings results tomorrow,  August 01 after the close.

The consensus earnings estimate is $1.57 per share on revenue of $44.67 billion but the whisper number is higher at $1.61 per share.

When the company last reported on May 2, earnings of $2.10 per share beat estimates by eight cents on a 4.6% rise in revenue.

Apple is likely to beat earnings when it reports. While many are considered about China declining, it is actually China’s slowing decline that will help the company produce an earnings beat.

Apple Inc. has a 52 week low of $102.53 and a 52 week high of $156.65. The company has a market capitalization of $779.47 billion, a P/E ratio of 17.54 and a beta of 1.31. The firm has a 50-day moving average of $146.92 and a 200-day moving average of $141.83.

Influencing Factors

Apple's financial results are largely driven by its iPhone business unit, and last quarter, Apple was still selling its old iPhone 7 series smartphones.

Things should get interesting later in the calendar year, when Apple begins rolling out its new iPhone models, which many believe will be compelling enough to trigger a so-called "super cycle" that'll lead to a big surge in unit demand.

Three product segments posted double-digit growth: services, Mac, and other products will likely be the driving force behind the next earnings report. These three segments achieved second-quarter revenue growth of 18%, 14%, and 31%, respectively. And two of these segments -- services and Mac -- look poised to deliver more growth in Q3 (Apple's "other products" segment, which accounted for about 5% of Apple's second-quarter revenue, is difficult to predict).

Apple's services segment should continue to benefit from the company's fast-growing App Store revenue. In a recent update on its App Store, Apple revealed that both App Store downloads and revenue is soaring. With trailing-12-month App Store downloads up 70% year over year as of June 1, app revenue doesn't look like a catalyst ready to slow down yet.

And the Mac business is looking hot as well. Not only was Apple still benefiting from its October 2016-released redesigned MacBook Pro in its most recent quarter, but the company launched an array of new Mac products with about three weeks left in Q3. Apple made its updated iMac, MacBook, MacBook Pro, and MacBook Air available online and in stores in early June.

Together, Apple's services and Mac segments accounted for a notable 24% of Apple's revenue in Q2. If these segments can grow in at the robust rates in Q3 that they did in Q2, Apple should be able to easily achieve its guidance for overall revenue growth of about 5%. Add in the possibility of Apple's recent iPad lineup refresh serving as a growth driver during the quarter, and there's definitely good reason for investors to expect Apple's return to growth to persist.

Analysts and Hedge Funds Opinions

In a note to investors earlier this week, Stifel analyst Aaron Rakers said that his intra-quarter data analysis pointed to only 38 million to 40 million iPhones shipped during the June quarter.

Rakers pointed to stabilization of demand in China, noting that Apple is up against a much easier comparison this time around. The iPhone maker has been struggling there despite many efforts to woo Chinese consumers. In the March quarter, Apple’s Greater China revenue tumbled 14% year over year, and in the December quarter, sales in the region was down 12%.

Most analysts agree that Apple needs to convince more Chinese to buy its phones, although it has been suggested that the iPhone 8 will be so magnificent that they will indeed buy it. Rakers reported that his intra-quarter data analysis suggested continued weakness in China during the June quarter as Chinese consumers hold off purchasing a new phone until the iPhone 8 comes out.

Other than China, the Stifel analyst also expects Services revenue to be a key focus in Apple FQ3 2017 earnings. He predicts that the company’s management will probably emphasize strong growth in this segment, just as they have been doing over the last several quarters. Consensus estimates peg Apple’s Services revenue at $7.07 billion during its third fiscal quarter. 

He estimates that the App Store contributes 30% to 35% of Apple’s Services revenue. He also expects Apple’s Services business to continue the strong momentum it has shown in the weak of the 18% year over year growth recorded in the March quarter.

Apple management has said they expect Services revenue to double over the next four years. In the long term, Credit Suisse analyst Kulbinder Garcha sees Apple’s Services revenue reaching $52 billion “driven by a high quality, affluent, digitally transaction user base of 1.1bn devices and around 650 million users.”

Harvey’s Options Volatility Indicator

Summary

This is a relatively calmer quarter for Apple. Apple’s revenues will continue to be driven by the fast growing “Services” segment as well the sales of iPhone 7 and 7 Plus. Services include revenues from App store, Apple Music and Apple Pay.

In the second half of fiscal 2017, Apple will be launching its mega edition, iPhone 8, around September.

iPhone 8 is set to be launched to mark the tenth anniversary of the revolutionary iPhone. It is reported to have amazing features like a glass body, a dual-curved edge-to-edge OLED display with a built-in Touch ID sensor and wireless charging. iPhone 8 is already dubbed a “super cycle”.

Meanwhile, the company remains focused on finding newer growth avenues. It is also working on developing technologies such as artificial intelligence (AI) and augmented reality/ virtual reality (AR/VR), which are fast emerging as lucrative business opportunities. The company’s interest in the autonomous car project is understandable as it is now being labeled as a big business opportunity. Apple also remains focused on increasing its market share in India.

Apple has been one of Wall Street's hottest stocks this year. Over the past one year, the stock has registered growth of 44.3% compared with the industry’s gain of 43.7%.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the AAPL SEPT 15 2017 155.000 CALL at approximately $2.80. Place a pre-determined sell at $5.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.10.

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

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Options traders win because they are successful.