An effective, cheap hedge on Apple shares into earnings, according to Mike Khouw

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An effective, cheap hedge on Apple shares into earnings, according to Mike Khouw

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and Saudi Arabia’s publicly traded national oil company, Aramco. There’s more good news for Apple when one looks at consumer surveys. While Android users generally rank their devices above Apple’s in terms of cost, android users who switch to Apple consistently rank the iPhone product and user experience higher. A premium product, a dominant market position, and a new release highlighting AI features in the iPhone 16, what’s not to like about Apple going into earnings at the end of this month on October 31? Well there are a few things: Consumers are stretched, and the iPhone 16 is an expensive device. Analysts have been reducing their estimates on iPhone 16 sales, so the previously anticipated refresh “supercycle” — which some analysts expected based on AI features and others, including myself, believed might have tailwinds associated with changing from proprietary lightning ports to USB-Cs — may not materialize. China — Apple depends heavily on China for both manufacturing and sales. Twenty-six percent of iPhone users are in China, and political rhetoric has ramped up during this election cycle, including talk of increasing tariffs on imported goods generally and China specifically. Government regulators — Apple has not had meaningful government interventions in its business affairs, but that could change. The Feds are looking for any unfair market practices by companies in dominant positions. Of course, that list includes Apple. The DOJ filed suit in March of this year, allegedly violating antitrust laws by monopolizing the smartphone market. Apple naturally filed a motion to dismiss, but the case will likely proceed for some time. Valuation — Apple’s pace of EPS growth has slowed significantly, as has topline growth. At the same time, buybacks, while significant in absolute dollar terms — the most recent authorization targets $110 billion — are less meaningful on a relative basis given the company’s nearly $3.6 trillion market cap. At 31.5 times forward earnings estimates, Apple is four turns richer than the 27.5 5-year average. The trade While some analysts remain very bullish, Dan Ives of Wedbush, for example, reaffirmed his “outperform” rating with a $300 price target on Friday, most others have more modest expectations. AAPL YTD mountain Apple, YTD I realize Apple is possibly the most broadly owned publicly traded stock in the world, and I expect it will remain one of the most profitable for many years, but I also feel that the upside from here is likely to be more muted or incremental. Therefore, I would offer the following “put spread collar” idea to hedge a modest downside move following earnings by purchasing a put spread against a long stock position financed by selling an upside call. Sell Nov. 8 $220 put Buy Nov. 8 $230 put Sell Nov. 8 $245 call f you do not already own the stock one might consider a diagonal call spread as a lower risk way to play from the long side than buying the stock going into earnings (and the election). 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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#effective #cheap #hedge #Apple #shares #earnings #Mike #Khouw

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