Apple, Suppliers On Watch Amid Trade War Fears

Apple partners Skyworks and Qorvo have huge exposure to China

Mar 14, 2018 at 1:59 PM
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Escalating concerns about a trade war with China are weighing on industrial stocks, and have the Dow lower in afternoon trading. However, while many traders fear Beijing could single out Boeing (BA), in particular, for retaliation, Apple Inc. (NASDAQ:AAPL) and several of its suppliers could also take a hit. According to data from Goldman Sachs, Apple suppliers Skyworks Solutions Inc (NASDAQ:SWKS) and Qorvo Inc (QRVO) have the biggest sales exposure to China, accounting for 85% and 75% of revenue, respectively, with AAPL also making the top 20.

AAPL Faces Hurdle at $180

The shares of AAPL were last seen 0.7% lower at $178.74, after touching a record high of $183.50 yesterday. It seems the stock's breakout north of $180 was a fake-out, and this level could re-emerge as resistance in the short term. Not only did it stifle Apple stock's upward momentum in January and late February, but it's also the site of heavy short-term call open interest.

In the soon-to-be front-month April series of options, the 180 strike is king, with nearly 40,500 calls outstanding. This abundance of bullish bets at the round-number strike could translate into an added layer of options-related resistance for AAPL shares in the coming weeks.

In today's trading, meanwhile, the March 180 call has attracted the most attention, with more than 36,000 contracts exchanged. It looks like some speculators are buying to open the calls, expecting Apple stock to retake the $180 level by the end of the week, when front-month options expire.

AAPL stock chart

Skyworks Stock Beloved By Analysts

Skyworks Solutions stock has shed 0.5% to trade at $111.48. While SWKS shares have been on fire since the early February stock market correction, they're now facing off against a familiar area of resistance. Specifically, the $110-$115 neighborhood contained the equity's upward momentum in mid-2015, and reappeared as a roadblock in mid-2017.

SWKS stock chart

Should the fears of a Chinese trade war come to fruition, SWKS stock could be at risk for a flood of negative analyst notes. Currently, 20 out of 23 analysts offer up "buy" or better endorsements, leaving the door wide open for potential downgrades. Likewise, the consensus 12-month price target of $118.53 is in uncharted territory for Skyworks stock, suggesting price-target cuts could be on the horizon, should the shares back down from resistance.

Options traders looking to speculate on SWKS' short-term trajectory can do so at a relative discount, though. The stock's Schaeffer's Volatility Index (SVI) of 28% is higher than just 19% of all other readings from the past year, pointing to relatively muted volatility expectations being priced into near-term options.

QRVO Options On Sale

Qorvo stock is taking the biggest hit this afternoon, down 1.8% to trade at $81.94, possibly due to the company's exposure to the defense and aerospace sectors. Like Apple and Skyworks shares, QRVO stock is also doing battle with a former foe on the charts. Specifically, the equity is staring up at the $84-$88 neighborhood, which contained a rally to record highs in 2015.

QRVO stock chart

As with its sector peers, Qorvo options are a relative bargain right now. Speculators looking to purchase near-term options should cheer QRVO's SVI of 32%, which is in just the 18th percentile of its 12-month range.

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