apple continues to prove itself as the market’s ultimate safe haven.
Apple hit a new all-time high even as a broader range of technology names and momentum stalled. Investors see the Cupertino giant as its own “above the fray” company, largely insulated from the spectacular AI capital spending cycles of mega-cap hyperscalers while avoiding exposure to the supply chains of pure-play chipmakers. It has also so far avoided some of the pain some AI moshpits have been suffering from lately.
Apple since the beginning of the year
Option pricing reflects this calm ahead of this quarter’s earnings report after Thursday’s bell. The options market suggests a modest post-earnings volatility of just 3.8%, making the volatility premium surprisingly reasonable overall.
Here are two ways to reflect that in your bottom line. One way is to hedge, and the other is to aim for higher prices.
Strategy 1: Low-cost portfolio hedging (for long-term holders)
For investors looking for significant returns, it’s rarely so cheap to protect profits ahead of publication. The flow of institutional investors is already showing a defensive tendency. One of the most notable institutional blocks traded today was just that, the purchase of 3,500 August $310 puts. Traders paid $2.22 per contract.
Cost: Protection costs approximately 65 basis points (0.65%) of the current stock price. In this setup, longholders are protected below $307.78.
How it works: The $310 strike is higher than the stock’s price during its last quarterly report. Buying downside protection here allows long holders to lock in a significant portion of the recent bull market while risking less than 1% of their total position.
Strategy 2: Buy risk-defined calls (for bulls)
If you want to participate in the rally, but not for long, you will need a huge amount of capital to buy the stock outright. Apple currently trades at more than 35 times forward earnings, its highest valuation multiple since 2007. Chasing full-size stock positions at peak multiples while broad-based stocks are weakening can create uncomfortable risk/reward entries.
Instead, prospective buyers should focus on long call or bull call spreads.
Advantages: Purchasing call options allows you to take advantage of upside potential if Apple outperforms expectations while strictly limiting your maximum risk.
Risk management: Avoid full equity exposure even if a stock that has increased 35x suddenly revalues.
takeout
The reasonable option pricing described in this publication creates clean opportunities for both sides of the trade. Long shareholders can secure downside protection for the penny, while future bulls can seize potential earnings momentum without all the valuation risk at record high multiples.
