Sometimes you have to place a bet that goes against the crowd. I am doing that with Apple today. Shares may have run their course even if there is a big bounce after earnings. I am also buying the dip on Netgear.


AAPL - Apple Inc - Company Profile

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. Company description from FinViz.com.

We currently have a long call position in Apple that I have recommended closing on Monday. Earnings are Tuesday after the bell.

If you have been following the long position you know that rumors have circulated for the last 6-weeks or so about production delays. Those rumors are building to a fever pitch with increasing specificity.

The rumors are growing from multiple reputable sources that the iPhone 8 production could be delayed until November making sales in 2017 almost nonexistent. There are other rumors that Apple will scrap the iPhone 8 launch for 2017 and announce a 7s with an OLED screen instead.

Reported problems are low yields on the OLED screen for the big version of the phone. Samsung is reportedly having trouble making the screens for Apple and for the dozen other phones by other manufacturers.

There are reports that the wireless charging feature is causing the phones to overheat.

There are reports that the circuit boards that are the heart of the phone are now so compact that they are proving difficult to manufacture and the twin camera attachments to the board are causing trouble.

Note from AppleInsider.com

Note from Forbes

If Apple announces any chance of a delay when they report earnings on Tuesday after the close, the stock could take a major hit. I am going to recommend an October put spread because Apple shares appear to have topped out. The excitement is fading, probably as a result of these rumors.

I chose the October strike because the iPhone announcement is always in September so they can deliver in the holiday shopping season. If Apple cancelled that event it would be just as bad as admitting there will be no iPhone 8 sales in 2017. If they don't cancel it and announced a 7s instead, there will also be a major sell off because everyone expects the iPhone 8.

This is purely a speculative position and Apple could post blowout earnings on Tuesday. However, if we waited until after the earnings and they said something about production delays, we would be kicking ourselves. I am using a spread to reduce the cost.

Buy Oct $140 put, currently $6.30, no stop loss.
Sell short Oct $125 put, currently $1.99, no stop loss.
Net debit $4.31.



NTGR - Netgear Inc - Company Description

NETGEAR, Inc. designs, develops, and markets innovative networking solutions and smart connected products for consumers, businesses, and service providers. The company operates in three segments: Retail, Commercial, and Service Provider. The Retail segment offers home WiFi networking solutions and smart connected products. The Commercial segment provides business networking, storage, and security solutions. The Service Provider segment offers home networking hardware and software solutions, including 4G LTE hotspots sold to service providers for sale to their subscribers. The company also offers commercial business networking products, such as Ethernet switches, wireless controllers and access points, Internet security appliances, and unified storage products; broadband access products, including broadband modems, WiFi gateways, and WiFi hotspots; and smart home/Internet-of-things connectivity and products comprising WiFi routers and home WiFi system, WiFi range extenders, powerline adapters and bridges, remote video security systems, and WiFi network adapters. It markets and sells its products through traditional retailers, online retailers, wholesale distributors, direct market resellers, value-added resellers, and broadband service providers worldwide. Company description from FinViz.com.

Netgear reported earnings of 64 cents that beat estimates for 62 cents. Revenue of $323 million also beat estimates for $309 million. Shares fell from $51 to $46 on the news.

Analysts were hung up on two areas. Operating margin at 10%, right in the middle of Netgear's guidance of 9.5% to 10.5%, was low in the eyes of analysts. However, when asked about it on the conference call the company said they made a decision to rush two additional products to market to expand their league leading market share in the security camera space. The Arlo Baby and Arlo Go cameras will launch this quarter.

The segment revenues for the Arlo cameras rose 152% to $60.7 million in Q1. This is a new product line barely a year old and revenues are exploding.

The second problem for analysts was a 10.1% decline in connected home revenue to $194.4 million. For me, the rapidly expanding camera revenue of $60 million offset the $20 million decline in the connected home segment. That is primarily WiFi routers and that is a very competitive space where the camera market is wide open.

They guided for Q2 revenue of $315-$330 million, which was just above analyst estimates.

Netgear typically under promises and over delivers. I doubt this quarter will be any different. If camera revenue doubles again this will be a very profitable quarter.

Earnings July 26th.

They do not have LEAPS but they do have a December option cycle, which is close enough for our purpose.

Buy Dec $50 call, currently $3.90, initial stop loss $44.50.