Among the many famous quotes from Jim Cramer, one about apples is particularly well-known: Hold it, do not trade it.

This statement reflects Apple's ability to withstand various obstacles, whether it's concerns about new products or concerns regarding the global economy. This tech giant has recently surpassed a market value of $5 trillion for the first time and is closing in on NVIDIA to become the most valuable company in the world. There may be even more growth in the future.

Apple recently stated that after opening reservations last Friday, demand for the much-anticipated foldable screen iPhone – Duo iPhone – “far exceeded expectations.” The demand was so high that within just a few minutes of accepting orders, the expected delivery time was postponed to late January (which is clearly not suitable as a Christmas gift). Coupled with the company’s new smart hub Homeview, the new MacBook Pro, the iPad equipped with a OLED display, as well as the Mac Studio released a few weeks ago and its related chips, this historically most successful consumer electronics company’s hardware lineup is beginning to compete with AI for investors’ attention. The only problem is that the company’s valuation already takes into account a large amount of good news.

What also drives this round of hardware momentum is the catalyst of software. The deep integration of Apple Intelligence, including the upgraded versions Siri AI and Visual Intelligence, means that Apple is becoming part of the AI story. Moreover, comparatively speaking, it does not bear the burden of huge capital expenditures like those companies that have worried investors about AI overheated trading – some companies have invested all their operating cash flows into it (Amazon, Alphabet), and some companies' capital expenditures even far exceed their operating cash flows (Oracle). Apple expects its revenue for the fiscal year 2027 to exceed $500 billion, and its EBITDA is expected to exceed $180 billion, but the company's capital expenditures are only $13.5 billion, which is much lower than that of other large tech stocks. As a result, free cash flow is expected to reach $156 billion; and when announcing its quarterly results as of June 27, the company disclosed net cash of about $62 billion.

The main obstacle faced by AAPL is valuation. With a market value of $5 trillion, Apple is encountering the law of scale. To continue to drive up the stock price at this size, it would require exceptionally impressive revenue that exceeds expectations, which is becoming increasingly difficult to achieve. Especially since the stock is already quite expensive. The trading price of AAPL is nearly 36 times the estimated earnings per share for the fiscal year 2027, which is 9.59, significantly higher than the long-term average valuation multiple. The pricing of Apple options is also above average, but this could actually be good news, as a higher short-term option premium can help fund the purchase of longer-term options. Given Apple's recent series of strong product releases and substantial free cash flow, yet it may still be constrained by high valuations, this could be an excellent opportunity to adopt a strategy that takes advantage of the risk reversal in price increases.

Trading Strategy

• Long leg: Buy a call option with an expiration date of February and an exercise price of $360.
• Short leg: Sell a put option with a December expiration and an exercise price of $310, as well as a call option with a December expiration and an exercise price of $375.

Selling a 12-month December 310 put option and a 12-month December 375 call option with a shorter expiration date can offset the cost of buying a longer-term February call option. Ideally, it is hoped that Apple's stock price will remain between these two put option strike prices before expiration in December and be above $360 at expiration in February. It should be noted that selling the put options below the current price will require margin, and you may need to buy the stock at that strike price upon expiration.

If AAPL experiences sideways fluctuations during the valuation process, the sold straddle combination will expire with its value returning to zero, thereby reducing the cost of your long position.

Disclosure: Tidal holds/owns all the securities mentioned in this text.

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