Naughty Flicks

Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuwatch nowVIDEO02:59How options traders can go long on Apple for lessOptions Action

Among Jim Cramer’s many famous phrases, his one about Apple often stands out: Own it. Don’t trade it.

The saying speaks to the company’s enduring ability to overcome any obstacle, whether it’s concerns about new products or worries about the global economy. The tech giant recently topped $5 trillion for the first time and is closing in on Nvidia as the world’s most valuable company. More gains could be ahead. 

Apple recently described the demand for the iPhone Duo, the long awaited foldable iPhone as “nothing short of extraordinary” after pre-orders opened last Friday. The demand was so great, that estimated delivery times pushed back to late January (so much for a stocking stuffer) within minutes of orders being accepted. Combine this with Homeview, the company’s new smart hub, new MacBook Pro models and iPads with OLED displays and the Mac studio and associated chips released several weeks ago and the hardware landscape for the most successful consumer electronics company in history is starting to compete with the AI trade for investors’ attention. The only problem is that the company already has a lot of good news baked into its valuation.

Compounding this hardware momentum is the software catalyst. The deep integration of Apple Intelligence, including upgraded Siri AI and Visual Intelligence, means that Apple is becoming part of the AI story, with the benefit that, on a relative basis, they haven’t had the enormous Capex that is concerning those investors who are concerned that the AI trade is getting frothy as many companies use all their organic cash flow (Amazon, Alphabet) or substantially more than their organic cash flow (Oracle). Apple’s anticipated revenues for FY2027 exceeds $500 billion. Expected EBITDA exceeds $180 billion, but the company’s capex is paltry relative to the other megacaps at only $13.5 billion in Capex. Result? $156 billion in anticipated free cash flow, and the company reported ~$62 billion in net cash when they reported results for the quarter ended June 27th.

Stock Chart IconStock chart iconApple, YTD

The primary headwind for AAPL is valuation. With a $5 trillion market capitalization, Apple is contending with the law of large numbers. Moving the needle at this scale requires monumental revenue beats that are increasingly difficult to engineer. This is particularly true as the stock is already priced quite richly. AAPL’s trading at nearly 36 FY2027 EPS estimates of 9.59 well above the long-term average multiple. Apple options are priced above average too, and that may be the good news, because elevated short term premium can help finance the purchase of longer dated optionality. With Apple supported by an extraordinary string of recent product releases and massive free cash flow, but possibly suppressed by high valuations, this could be an excellent opportunity for a call spread risk reversal.

The trade

• The Long Leg: February 360 calls 
• The Short Legs: Sell December 310 puts and the December 375 calls

Selling the shorter dated December 310-puts and December 375 calls offsets the cost of buying the longer dated February calls. Ideally, you want Apple shares to stay between the two, short strikes by December expiration and above $360 by February expiration. One note of caution. By selling that downside put will tie up some margin, you could be on the hook to buy the stock at the put’s strike by expiration.

If AAPL chops sideways as it digests its valuation, the short strangle expires worthless, lowering the cost basis of your long.

Disclosures: Tidal owns/holds all the securities mentioned in the article.

All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. This content is provided as part of our editorial output for informational purposes only and does not constitute 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.

THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE 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.

Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.Read More