Apple Inc. ’s shares, after enjoying an amazing surge last week were slipping this Monday; however, one trader sees this drop as a big opportunity to make money on Apple’s next move. The launch of the iPhone 7 and the consumers’ excitement over the new iPhone has assisted the shares to add 11.3% last week, making it Apple’s best week since 2011.
“Higher Probability” of success
Todd Gordon of TradingAnalysis.com believes the stock may “run out of the supply of natural buyers.” By that, Gordon means there will be no one left to push up the stock and then selling will come in. On CNBC’s “Trading Nation,” Gordon said that on the chart, he sees the shares running into a zone of resistance. He noted that Apple Inc. ’s stock will have trouble going above $116 in the coming days.
Gordon is planning to sell a call spread, a trade in which a higher-strike call is sold while only one call is purchased, to capitalize on his view that the tech giant is not going higher. With such a strategy, the trader gets an immediate premium from selling a more expensive option than he is buying, notes CNBC.
Gordon, in this particular case, purchases the October 118-strike call and sells the October 114-strike call for about $160 per options spread or $1.60 per share. Gordon gets to keep that money if the Silicon Valley giant closes below $114 on October expiration. But he will lose $240, if Apple shares close above $118, and if he holds the trade to expiration.
“It is a skewed reward-to-risk ratio, but by selling call spreads above the market, we have a higher probability of success,” the expert said. If the stock moves above $116.50, Gordon is planning to get out of the trade since that will disprove his theory that $116 will serve as resistance.
Apple is taking aim at PayPal
Meanwhile, Apple Inc. continues to improve its growth prospects to push its stock up further. The Cupertino-based firm is now planning to bring Apple Pay to its Mac lineup. The system has been on iPhones for two years since its launch. By using the fingerprint reader on their iPhone, shoppers will verify identity and payment.
PayPal, which pioneered online payments long ago, could be hurt with the release of this new feature. As per Canaccord Genuity, PayPal handled 16% of overall retail e-commerce dollars in 2015. Apple would like to have some of that business, and so would the search giant Google, who is working to expand the reach of its own Android Pay system.
Canaccord estimates that the share of e-commerce dollars for PayPal could drop to 9% by 2021. Michael Graham, Canaccord analyst, lowered his opinion of PayPal shares on Monday, in part because of the rising competition.
On Monday, Apple shares closed down 1.17% at $113.58. Year to date, the stock is up almost 6% while in the last six-months, it is up over 7%
Disclaimer: The above should not be considered or construed as individualized or specific investment advice. Do your own research and consult a professional, if necessary, before making investment decisions.