Apple Inc.: Here’s How to Play the Bottom in AAPL Stock

Bottom in AAPL StockBottom in Sight for AAPL Stock

Apple Inc. (NASDAQ:AAPL) has seen its share price steadily eroded since trading at $134.54 on April 28, 2015, breaching below the psychological $100.00 price last Wednesday. AAPL stock, has been a Wall Street darling with some bullish pundits even going as far as suggesting Apple would be the first trillion-dollar stock.

As a trader, I would have sold Apple stock at around the high point. Now, at just below $100.00, I’m thinking whether it’s a good enough entry point.

The 52-week low of $92.00 was achieved on August 24, 2015, when a flash crash crushed the stock market, driving the Dow down over 1,000 points.

By definition, AAPL stock is in a bear market with the share price off 26% from its high. The question is whether it is now a good entry point or should you wait for more weakness?

The selling in Apple has largely been dictated by the uneasiness toward the fact that Apple currently generates a major portion of its revenues from the “iPhone.”

A news article in Japan suggested Apple could cut production of its “iPhone 6” by as much as 30%, which, of course, spooked the stock market, as it would be a major hit.

Apple Chart

Chart courtesy of www.StockCharts.com

There was then news that Chinese manufacturer Foxconn was scheduling a work break during the Chinese New Year that begins February 8, 2016 for 15 days. While taking a pause is not unusual for manufacturers, it is for Foxconn, which makes the iPhone.

Why Apple Is Still a Top Technology Stock

Now, while the current situation looks messy on the chart for AAPL, my view is that the longer-term thesis remains intact.

A key wildcard for Apple will be what happens in China, the world’s biggest mobile phone market.

The fact that China is currently witnessing stalling in its economy is a bump in the road for Apple. The country is transitioning from being export-dependent to consumer-centric. If this pans out—and signs do suggest it will—we could see a new era of enlightenment for Chinese consumers and China. This would bode well for Apple, which generates about 27% of its business from the country.

The fact that Apple is still relatively new in China speaks well for its prospects there. The key will be Apple’s iPhone adoption to the country’s 4G network.

The launch of the “iPhone 7,” slated for 2016, could prove to be a massive game-changer for Apple, especially if the phone is perceived as a significant upgrade.

Moreover, don’t forget Apple still operates tremendous ecosystem products that link with each other. This includes the iPhone, “iPad,” “iMac,” “Macbook,” “Apple Watch,” and “Apple TV,” along with an expected bigger move into the auto sector via an inboard Apple-powered system, or perhaps Apple cars, as some believe the company is seriously looking at.

Plus, when the war chest has some $200 billion of cash, there are so many things you can do, whether it’s new products or buying existing great technologies to add or enhance to its product arsenal. Think GoPro, Inc. (NASDAQ:GPRO) or even BlackBerry Limited (NASDAQ:BBRY) for its security patents and highly popular ONX vehicle software.

What to Do

The question is where should investors take the plunge into Apple stock?

I’m waiting for a possible retest at around $92.00. Put options provide the most attractive avenue to call a bottom.

For example, Apple bears who feel shares will decline by June can sell the $85.00 puts expiring on June 17, 2016 at the current premium of $3.30 per share, which is the buyer’s to keep. If Apple falls to below $85.00 by the expiry, the buyer is required to purchase AAPL stock at the $85.00 strike. The actual cost would be $81.70, discounting in the premium you received.

Alternatively, a $90.00 put would generate premiums of $4.71 per share, as of now, with an adjusted cost base of $85.29, if the option were exercised.

Of course, these strategies should not be construed as a recommendation, but simply an example of an investment strategy that readers may consider.

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