by Michael Shulman | June 11, 2012 4:55 pm
Apple’s (NASDAQ:AAPL) relatively unsurprising product announcements at today’s WorldWide Developers Conference reinforce not just my view of the company and its performance over the next five years, but something I tell any trader who will listen: If you do not own Apple shares, or sell Apple puts, or own Apple shares and sell calls against those shares, you are losing money every day.
1. Apple has the number one brand in the world (or number two, depending on what company did the survey and analyses) based on the brand’s value.
2. Apple is the market leader in laptops, mobile phones and tablets in in terms of product quality, product features and product perception.
3. Apple has small to tiny market share — less than 5% in computers and less than 3% in cell phones. And if you add low-end laptops and netbooks to tablets, it dominates less than 25% of that market. In other words, Apple has enormous room to run.
4. Apple prints money– the company has just less than $100 billion in cash, annual growth is conservatively estimated to be above 25% and profits we’re up more than 90% quarter over quarter.
5. The stock is a tribute to the insanity of the current market and the inability of Wall Street money managers to understand anything more than their next trade or paycheck. The stock is selling at a serious discount to the S&P 500. Pundits keep saying it is near the average value of an S&P stock, but they neglect to factor in growth — and that makes it undervalued to other S&P growth stocks by more than 50%. Admittedly, the stock is held back due to its massive market cap. But this cannot last over time as the company increases revenues and earnings.
So, how should you play AAPL from here?
Trade #1: Buy AAPL now and sell the June AAPL $575 calls. If you had done this today and sold the weekly call — which is actually the June call, all monthlies expire this Friday — you would have generated a 0.86% return. Small potatoes, you say? Do it fifty times a year and you bank a 43% return even if the stock stays flat.
Trade #2: You can also sell a long-dated AAPL call. If you sell the January 2013 $630 call, you will get around $39 for it. Add that to appreciation in the stock if you are called out, and you wind up with $84 per share. That is more than a 16% return and an annualized return of around 30%. And you can always roll the call forward and keep generating cash while hanging on to the stock.
Trade #3: If you are willing to own the stock at $570 and sell the June AAPL $570 puts, you can generate around $5.75 per share. And if the stock does not move, this is a return of 1% or 38% a year.
Trade #4: If you really want to avoid owning the stock when selling puts, sell the January 2013 AAPL $525 put — that is a ridiculous price and a very strong support price — and you will net around $42 per contract. That is a return of 8%, an annualized return of 15%-16%. And as the stock rises, you can buy it back and sell it again.
Am I an Apple bull? You bet I am. My target price is $1,200 in the next 1-3 years. And I love generating weekly income from selling calls and puts.
For purposes of disclosure, Michael Shulman owns shares of AAPL.
Michael Shulman is editor of Options Income Blue Print. Learn more about trading weekly options in this free short video.
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