Apple (AAPL, $88.90, down $1.22) is trending lower this morning after a price target cut on its shares. Credit Suisse reduced their target for Apple to $120 from $135 as it sees weakening demand for the PC market. They maintained an “Outperform” rating on the stock.

I’m a huge Apple fan but I play the stock both ways. When Apple was making new all-time highs, we were going long by buying call options. When Apple begun to break down, we purchased put options. Over the past few months Apple has been stuck in a mini-trading range of $90-$100 with an occasional run to $110.

Where the stock goes from here depends on a few variables. To start, if PC demand is falling, Apple may have to cut prices to move Macs. That may help sales but their gross margins would take a hit. I’m sure iPod and iPhone sales are going to be “OK” but I don’t think they will be as robust as past quarters.

Wall Street is preparing for a weak holiday sales season, and Apple could suffer if that’s the case. The other factor to the equation is that Apple has no plans to release any new products for the biggest shopping season of the year which could weigh on the stock.

I don’t like betting against Apple but the stock has fallen below its 20, 50, and 100-day moving averages and could test its 52-week low of $85.00. Short-term traders are targeting the November 85 puts (QAAWQ, $3.15, up $0.35) and the November 80 puts (QAAWP, $1.73, up $0.17) which expire next Friday.

I feel safer playing the December 80 puts (QAAXP, $5.10, up $0.20) because it gives us more time for a breakdown but the November puts will give you more bang for your buck. Remember though, the November puts are like a double-edge sword. If Apple bounces back and reverses course, you could lose a significant amount of capital.

If you use the December puts, place a 25% stop loss from your entry price and target a 50% return or better. If you are doing the November puts, do a 50% stop loss on your entry and target 50%-100% gains.

Rick Rouse
Rick@OptionsMentoring.com

We have a big week of earnings and Apple (AAPL, $97.26, down $0.14) will get things rolling on Tuesday. The stock hit a low of $85 on October 10 and rebounded to $116 a few days later which shows that the volatility can be extreme.

There are various opinions on what type of numbers Apple will report but here is an idea. On average, Wall Street is expecting $1.11 a share on $8.1 billion in revenue. They expect 2.9 million in Macs sold, 4.5 million for iPhones and 10.5 million in iPods.

I would expect that the Mac numbers will come in better-than-expected as well as the iPhone number. A recent trip to Atlantic City only verified the number of iPhones being sold, in my mind. They were everywhere. The iPod sales should be slightly better given the huge cut on the iPod Touch from $399 to $229. If all these stars align, Apple will beat estimates.

The key, of course, on whether Apple will trade higher after announcing earnings will be its guidance. The company always seems to simmer Wall Street’s expectations by guiding lower and usually that has hurt the stock in the past. Maybe things will be different for a day or two and Apple can enjoy a nice rally like the good ol’ days.

The November 110 calls (QAAKB, $4.85, down $1.40) might be a good bet if you are bullish but they are expensive. Volume has passed open interest today so investors are expecting a big move out of Apple. The November 90 puts (QAAWR, $6.05, down $1.90) are also active as bears could be thinking Apple will test its lows again.

Either way, I think there are better trades out there but Apple looks poised for a significant move higher of lower over the next few days. Today’s action is mild but the behind-the-scenes option market is showing something different.

Rick Rouse
Rick@OptionsMentoring.com

Research in Motion (RIMM, $97.53, up $0.82) reported earnings after the bell and they weren’t pretty. Wall Street was eager to hear the news but punished the stock in after-hours trading when the company missed earnings by a penny. I mentioned on Monday that analysts were looking for revenues of $2.6 billion and earnings-per-share of $0.87. RIMM also missed revenues by $20 million.

We also talked about RIMM’s September numbers which were a little funny but this could have been because consumers are waiting for the arrival of the company’s new Bold smartphone. The company said new subscriptions were 2.6 million, which matched expectations but new devices sold only reached 6.1 million, not the 6.3 million Wall Street was expecting. So maybe consumers were/ are holding out or just buying the iPhone instead.

In after-hours trading as I write this, RIMM is down $18.88 to $78.65. Yikes. I was hesitant to recommend another strangle option trade on RIMM because I thought we would only see a 10% move in the stock either way. We had used the October 120 calls (RULJD, $1.20, down $0.36) and the October 80 puts (RFYVP, $2.06, down $0.54) as a strangle on September 16 and closed both sides of the trade within a week. We made a gain of 40% with that trade. The after-hours drop of 20% for RIMM should hold up to make this trade profitable if you put this strategy on before earnings.

Rick Rouse
Rick@OptionsMentoring.com

Research in Motion (RIMM, $141.69, up $8.92) is having a stellar day, hitting an all-time high of $143 earlier in the session. The company unveiled its latest BlackBerry model dubbed, the Bold, which was its first major new model in over a year. The phone is expected to compete directly with Apple’s (AAPL, $188.16, up $4.71) iPhone.

RIMM’s Bold has twice the screen resolution of the company’s current Curve BlackBerry and dual-band Wi-Fi and GPS capabilities should be available from carriers this summer. The May call options have been active in RIMM. The May 140 calls (RULEH, $4.07, up $3.30) have traded over 30,000 contracts and are up 428%, and the May 145 calls (RULEI, $1.77, up $1.52) are up 600% as over 20,000 contracts have traded hands.

The announcement of the Bold came earlier than expected and on the heels of Apple’s news that its online stores in the U.S. and U.K. are sold out of the iPhone. Some stores run by Apple and AT&T (T, $39.11, up $0.52) may still have units available but it’s hit or miss.

The low availability of the iPhones could indicate that the release of a 3G iPhone is just around the corner. Apple has a conference that starts June 9 and we all know Steve Jobs likes to make a splash at such events. Apple sold 1.7 million iPhones in its last quarter and its goal is to sell 10 million iPhones by year-end. Many analysts believe they will easily beat that number.

The release of a new iPhone would help offset sales that Apple is losing now as people anxiously await its release. All three companies (Apple, AT&T, and RIMM) have positioned themselves ahead of the competition and now its up to the rest of them to play catch-up.

Rick Rouse
Rick@OptionsMentoring.com