A SanDisk Trade Idea for Apple Bulls

by Michael Shulman | March 28, 2012 11:41 am

[1]I bought the iPad for my wife this past Sunday – I had cracked the screen on her old one a few months back and as it turns out, this was the smartest thing I have done in a while. Meanwhile, the battery compartment on my Mac laptop began to act a little strange last week and so I bought a Mac mini yesterday. And, if course, everyone in my family owns iPhones.

What does this have to with generating weekly income?

All three products use flash memory for memory[2] and the Mac mini has an option to use flash for storage as well. So when you think Apple (NASDAQ:AAPL[3]), think flash, and when you think flash, think SanDisk (NASDAQ:SNDK[4]).

SanDisk is a premier supplier of flash memory. Because it owns a lot of the intellectual property surrounding flash, SanDisk is able to collect licensing fees from competitors. It is a great company with a volatile stock price, as Wall Street (too often) trades the stock based on the spot price of flash memory or news that someone has announced a new fabrication plant for making flash.

This volatility, seen as a negative for people who own shares or calls on the stock, can be a great benefit for those of us selling puts on the stock. Because high volatility inherently raises option premiums, the put-selling strategy is one way to turn SNDK into a stock yielding at least 17% annually.

At current stock prices of $50.35 or more, you can sell this week’s SNDK March weekly 50-strike puts –and collect roughly 35 cents per share, or $35 per contract. Let’s assume traders agree with my view of the company for just a couple of days, SNDK stays above $50 through Friday, and the put expires worthless. You keep the $35.

Note that the sold strike price is relatively near-the-money, so this isn’t a terribly conservative play.  If SNDK is trading below the $50 strike when the options expire, you will likely be required to meet your obligation of buying the shares at an effective price of $49.65 per share.

Do this 25 times a year because you have other things to with your time or capital and you have $875 in your pocket, a return of 17.4%. Do it 50 times year and you have $1,750 in your pocket for each contract you have sold, a return of almost 35%.

Michael Shulman is editor of Options Income Blue Print[5]. Learn more about trading weekly options in this free short video[6]. 

For purposes of disclosure, Michael owns shares of Apple and SanDisk.

Source URL: https://investorplace.com/2012/03/a-sandisk-trade-idea-for-apple-bulls/

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