A bearish options trade on Apple as the tech giant struggles
Apple is showing signs of vulnerability as the tech giant faces increased downside risk as market sentiment weakens. This has been compounded by missed opportunities with Apple Intelligence, slowing iPhone sales, and limited developer support for VisionPro. With AAPL sitting above a major support level, this setup provides a compelling case for adding bearish exposure using a vertical spread with a strong risk/reward ratio to target a potential quick decline. Trade timing The timing for adding bearish exposure to AAPL is optimal, as the stock is trading just above its $195 support level. This has been coupled with poor relative strength to the S & P 500, suggesting a higher likelihood of a breakdown below $195, with a downside target near $170. Fundamentals AAPL trades at a considerable premium over its industry despite lagging growth rates, making its valuation hard to justify based solely on profitability. Forward PE ratio: 25x vs. industry average 19x Expected EPS growth: 8% vs. industry average 11% Expected revenue growth: 5% vs. industry average 6 Net margins: 24% vs. industry average 9% Bearish thesis Poor relative performance: AAPL's relative strength to the S & P 500 is notably weak at 2 out of 10, heightening the probability of a breakdown below its $195 support. Launch missteps: The botched release of Apple Intelligence, marked by delays and underwhelming features, alongside disappointing iPhone 16 sales has eroded investor confidence. Additionally, the lack of developer support for VisionPro further weakening AAPL's growth narrative. Valuation risk: The stock's forward PE of 25x suggests that there are substantial risks to its valuation. Options trade To capitalize on AAPL's potential downside, I'm buying a July 18 $195/$180 put vertical @ $3.99 debit. This entails: Buying the July 18 $195 put @ $5.70 Selling the July 18 $180 put @ $1.71 The maximum reward is $1,101 per contract if AAPL is below $180 at expiration. The maximum risk is $399 per contract if AAPL is above $195 at expiration. The breakeven point for this trade is $190.01. View this Trade with Updated Prices at OptionsPlay. This strategy positions you to benefit from AAPL's potential quick breakdown below $195, leveraging its poor relative performance, launch missteps and rich valuation to profit from a debit vertical spread with a strong risk/reward ratio. This trade offers a compelling opportunity to capture downside potential in a high-premium tech stock with limited risk. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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