(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of AAPL.)
Options traders are betting Apple Inc. (AAPL) stock will rise by about 10% by September 21 from its current price around $192. Options expiration should come after Apple's keynote event unveiling its new iPhone lineup. Last year’s event was on September 12. Apple is having a very good 2018 with the stock up about nearly 14%, and almost 28% over the past year. It is easily beating the S&P 500 rise of 14% over the past 52-weeks.
Apple is due to release its fiscal third-quarter for 2018 at the start of August. Analysts are looking for Apple to say that earnings rose by nearly 31%, on revenue growth of about 15%.
The options set to expire on September 21 are overwhelming bullish at the $195 strike price. The number of bets that Apple will rise outnumber the bets the stock will fall by nearly 6 to 1, with 24,000 open call contracts. With the contract's trading at roughly $5.50, the price of Apple's stock would need to rise by nearly 5% to almost $201 for the buyer of the calls to break even if they are held until expiration. (For more, see also: Key Levels for Apple Stock in Second Half of 2018.)
However, some traders are betting the stock rises even higher, to nearly $211. The $210 strike price calls have an open interest of almost 25,000 open contracts and cost about $1 per contract. The stock would need to rise by about 10% for those options to breakeven.
The bullish outlook for the stock comes as analysts look for full-year 2018 earnings growth of 25%, on revenue growth of 14%. Earnings growth is expected to slip in fiscal 2019, with earnings seen climbing by just over 14%, while revenue growth is forecast to rise by a little more than 4%.
The modest earnings and revenue growth in 2019 is perhaps why some are betting on the iPhone event, and looking for a positive surprise. The first-quarter for Apple, which starts in October, is generally Apple’s strongest quarter for revenue following the release of the new phones. Last year was the first time over the past four years that saw meaningful revenue growth in the first-quarter following the release of the iPhone X, 8 and 8 Plus. Perhaps a new slate of phones may offer a new level of excitement, and boost revenue even higher. (For more, see also: Why Apple's Stock May Have Peaked.)
Regardless of the reason, the recent betting for the expiration in September would suggest the bulls are looking for shares to rise over the coming weeks.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.