Apple Releases Q3 2014 Next Week: Still Marching Forward and Upward

It’s exactly one week today that I wrote about trading options of Apple Inc. (NASDAQ:AAPL) with a focus on buying calls and writing covered calls. You can read that post here if you would like to brush up on reasons for my bullish position. On June 13 when I wrote that post, shares of Apple were trading at $92.20 and the AAPL Jan 2015 100.000 call (AAPL150117C00100000) call option I recommended was trading at $3.30. As at market open today, shares of Apple has gained 3.37% and the options contract has gained 34.84%.

Still Marching Forward and Upward

Today’s opening price shows that shares of Apple is trading at a mere 1.65% discount to the 52-week high to suggest that Apple is trading near a technical breakout or a significant selloff.  Apple’s calendar is full of news events that have the potential to drive the stock in either direction; yet, all indications point to the fact that a breakout is more possible than a downtrend.

Growth in the Bottom Line

Apple is set to release Q3 2014 earnings next week on July 22 and the circumstances surrounding the earnings release suggests that Apple will deliver another stellar performance in the top and bottom lines. For the current quarter, the consensus analysts’ estimates projects that Apple will deliver earnings of 1.21% to mark a 13.63% annual growth in earnings. In the last reported quarter (Q2 2014), Apple reported earnings of $1.66 to beat the consensus estimate of $1.46. In fact, Apple has beaten estimates in the last four quarters and we can expect another outperformance to send the share price higher to breakout levels.

Growth in the Top Line

The major indicator of growth in Apple’s revenue is the measure of increase recorded in iPhone sales because iPhone sales accounted for 57% of Apple’s revenue in the second quarter. The consensus analysts’ estimate is that Apple will report the sale of 35 million units of the iPhone in the current quarter. 35 million iPhone sales in the current quarter will mark a 12% annual growth in unit sales of the iPhone.

Nonetheless, I consider the 35 million unit sales of the iPhone conservative because not all the factors that could affect the sales have been considered. An important factor that could drive up iPhone sales significantly is availability of the iPhone on China Mobile’s LTE network. Apple had projected that entry to China will add about 5% to total revenue; hence, I posit that iPhone sales this quarter will provide annual growth around 16% to 18%.

More Upside Potential Ahead

It is natural to be cautious when a stock is breaking out into new highs because “everything that goes up must come down.” However, Apple is working hard to stay ahead in the game of relevance in a fast-changing tech sector with innovations that will keep current users locked on its ecosystem and convince consumers sitting on the fence to bite the apple.

The launch of the iPhone 6 is about two months away and expectations are high that Apple will once again raise the bar even as pent-up demand for a sleeker design and larger display on the iPhone fills the air. It has been reported that the iPhone 6 will come with a 5.5-inch display to make media and gaming more immersive and to compete favorably against the phablets making waves in the Android ecosystem. The iPhone 6 will not drive up Apple’s share price indefinitely, but it will hold the fort until Apple releases another innovation to set the bar higher.

How to Trade AAPL Options

I remain strongly bullish on Apple and AAPL call options are attractive. The AAPL Jan 2015 100.000 call (AAPL150117C00100000) I recommend last month has done well with a 34.84% gain and I will sell half of my contracts today- I intend to sell the remaining half when they make a 50% increase.  It is not too late to join the winning team if you did not buy the contract on my earlier recommendation.

Photo: Janitors via photopin cc

— Daily Option Alerts

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