Apple Stock Set to Snag Record High

Apple Inc. (AAPL) shares could reach record highs if options bears start hitting the exits

Feb 10, 2017 at 10:53 AM
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Apple Inc. (NASDAQ:AAPL) is fresh off an annual high of $132.94, and fast approaching its all-time peak of $134.54 from April 2015. Based on pent-up negativity among options traders, it seems the shares could have gas left in the tank, too, from a contrarian perspective. Below, we'll break down AAPL's technicals and fundamentals, and explain why it might be a good time to purchase stock options on the outperforming Dow component.

AAPL has been red-hot in 2017. Up 0.3% at $132.88, the shares already sport a year-to-date gain approaching 15% -- more than doubling the Nasdaq's 6.3% advance. The stock has been so strong lately that its 14-day Relative Strength Index (RSI) has risen to 89, well into "overbought" territory. While this could suggest near-term consolidation, Apple's technical backdrop remains encouraging overall.

As alluded to, options traders haven't been sold on the shares, despite their positive momentum. The stock's Schaeffer's put/call open interest ratio (SOIR) rests at an annual high of 1.49, meaning put open interest outweighs call open interest by an extreme margin, historically speaking.

Digging deeper, over the past 10 days, the 130 strike has seen a nearly 40,000-contract jump in put open interest, looking at options in the front three-months' series. Buyers may be anticipating an AAPL pullback south of $130 -- or, alternatively, they could be shareholders protecting paper profits. In any case, an unwinding of the hedges related to these positions could reinforce support at the round-number level.

As alluded to, it's a very attractive time to strike on Apple options. The stock's Schaeffer's Volatility Index (SVI) sits at an annual low of 13%, hinting at muted near-term volatility expectations. Plus, the Schaeffer's Volatility Scorecard (SVS) of 98 suggests AAPL has tended to make outsized moves in the past year, relative to what the options market has priced in.

Turning to the brokerage bunch, sentiment is overwhelmingly positive -- with 24 of 31 analysts doling out "buy" or better opinions. However, one brokerage firm believes AAPL needs to bolster its content via an acquisition. Specifically, Bernstein wrote that the company's "biggest opportunities for Services growth are to expand the attractiveness and ease of use of the App Store, where less than half of all users transact today; continue to forge/attract/acquire gaming partnerships; and to look to offer enhanced content offerings."

Finally, buzz is building around the release of the iPhone 8 this fall, which represents the smartphone's 10-year anniversary. While the device could cost over $1,000, major upgrades are anticipated -- including an all-glass body, an edge-to-edge OLED display, and wireless charging. Suffice it to say, a successful launch of the iPhone 8 could be yet another boon to shares of Apple Inc. (NASDAQ:AAPL).

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