The Stock of Apple Struggles to Keep Pace With the Broader Market, Leading to a Bearish Options Trade

In late September, I outlined a bearish perspective on Apple (AAPL), which culminated in a 100% gain when the trade expired last Friday. With ongoing challenges and recent developments, it’s time to revisit this bearish outlook.

‍

Apple faces mounting obstacles, including underwhelming iPhone 16 sales, intensifying competition in augmented reality (AR), and slow progress in artificial intelligence (AI). The company’s much-hyped Apple Intelligence platform has yet to deliver significant advancements, leaving Apple trailing behind competitors like Meta and Microsoft.

‍

Additionally, the recent launches of AR glasses from Meta and Snap underscore Apple’s struggles to commercialize its Vision Pro headset, raising questions about its position as an innovation leader.

‍

A weakening Chinese economy has also posed challenges for Apple in one of its most critical markets. This slowdown, coupled with valuation concerns, leaves Apple increasingly vulnerable to further downside pressures.

‍

Apple’s stock has been trading in a narrow range between $215 and $232.50 over the past few months. Despite multiple attempts, it has failed to surpass the $232.50 resistance level. This lack of upward momentum has translated into weakening relative strength, as the stock lags behind broader market performance. Momentum indicators point to a likely retest of the lower end of its trading range near $215. If the stock breaches this support level, it could face further declines in the coming weeks.

‍

At over 30 times forward earnings, Apple’s valuation significantly exceeds the industry average of 19 times. While the company boasts exceptional net margins of 24%, its projected EPS growth of 11.6% and revenue growth of 6.9% offer limited justification for such a premium valuation. With faltering iPhone sales growth and no clear catalyst emerging from its AI or AR/VR initiatives, sustaining this valuation premium becomes increasingly difficult.

‍

To potentially profit from Apple’s expected downside, one approach involves selling a Dec 27 $230/$240 call vertical spread for a credit of $3.65. Here’s how this trade works:

• Sell the Dec 27 $230 Call for $5.40
• Buy the Dec 27 $240 Call for $1.75

‍

This trade setup results in a net credit of $3.65 per contract. If Apple’s stock remains below $230 by expiration, the trade yields a maximum reward of $365 per contract. Conversely, the maximum risk is capped at $635, with the breakeven price set at $233.65. This offers a favorable risk/reward ratio for traders looking to capitalize on Apple’s current challenges.

‍

The strategy aligns with Apple’s ongoing headwinds and fundamental concerns, providing an opportunity to profit from continued weakness while maintaining defined risk. As the stock faces growing competitive pressures, valuation struggles, and technical resistance, this trade may offer a strategic way to navigate the bearish outlook.

‍