(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Apple Inc. (AAPL) is set to report results on May 1 after the close of trading, and some are betting shares of the stock drop by over 8% by the middle of May. Shares of Apple are already over 10% off their highs set in the middle of March of almost $182, and if the traders' bets prove correct, shares could be down by over 18% from those highs in a matter of weeks.
Analysts are forecasting revenue to climb 15.35% to $61.02 billion in the fiscal second quarter, while earnings are seen soaring by nearly 28% to $2.69 per share. Analysts' revenue forecast fall right in the middle of the guidance Apple provided during its fiscal first quarter update, of $60 to $62 billion. But there has been increasing nervousness among investors after chipmaker Taiwan Semiconductor Manufacturing Co. Ltd.'s (TSM) results pointed to a weak smartphone demand. (For more, see also: Apple's Stock Sharp Decline May Be an Overreaction.)
The options set to expire on May 18 are not implying a big move in the price of Apple, about 6.5% from the $160 strike price. The cost to buy one put and one call is about $10.35, placing the stock in a trading range between approximately $149.65 to $170.35. But, the open interest at that strike price is overwhelmingly bearish, with the number of puts outweighing the calls by nearly 4 to 1, with almost 17,600 open put contracts to only 4,500 open call contracts. (For more, see also: Why Apple's Stock May Have Peaked.)
An 8% Drop
Another layer of bearish bets at the $155 strike price, with nearly 15,600 open puts contracts and a breakeven price of roughly $152.65. This price is about 6% below Apple's closing price of $162.32 on April 27. There are yet another set of open puts contracts at the $150 strike price, with nearly 21,200 open puts contracts and a breakeven price at $148.80, a drop of over 8% from its closing price on Friday.
Both sets of puts contracts, having seen open interest steadily rising over the past several weeks, is an indication that traders are growing more bearish on Apple over the short term. In total, the $160, $155 and $150 strike prices puts have an approximate dollar value of $13.5 million, a sizable bet.
There Are Bulls Too
The number of open call contracts has been creeping up as well, but the amount of money being wagered is far less. The $170 strike price has about 21,900 open calls contracts, while the $175 strike price has roughly 21,760 open call contracts. In total, the dollar value represents approximately $8.7 million, suggesting more wagers are placed on shares falling after results, than shares rising.
It would seem that traders are betting shares of Apple fall after the May 1 report, but Apple has a history of surprising both investors and traders. There is no better example than Apple's last round of results on February 1.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the founder of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of two to three 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 recommendation made during the past twelve months. Past performance is not indicative of future performance.