Apple Inc: Buy AAPL Stock at an Even Bigger Discount

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AAPL stock - Apple Inc: Buy AAPL Stock at an Even Bigger Discount

Source: via Apple

If you want to follow in the footsteps of a legendary value investor in Apple Inc. (AAPL), your first step could put you well ahead. But if you’re looking to improve your margin of safety, look no further than the AAPL stock chart and a bull put spread.

Apple Inc: Buy AAPL Stock at an Even Bigger Discount

A recent regulatory filing by Warren Buffett’s Berkshire Hathaway revealed the fund’s recent and nearly $1 billion initiation position in AAPL stock cost an average of $99.49.

The AAPL stock purchase may not look too shabby over the long haul, but at the moment, shares could be entering levels sufficient to entice the company to begin accumulating a second tranche at even stronger value.

Currently, weak-acting price action in Apple stock over the last several sessions compounded by Friday’s surprise Brexit announcement puts shares at a one-month closing low of $93.40 and more than 6.1% below the legendary investor’s “margin of safety” price tag.

The margin of safety — or the relationship between a stock’s market value and its intrinsic value — is sacrosanct with value investors when making a purchase decision like with AAPL stock.

But if you want an even better margin of safety than Berkshire Hathaway, it may pay to look at the AAPL stock chart in conjunction with a limited risk, out-of-the-money bull put spread.

Apple Stock Weekly Chart

062416-aapl-stock-chart
Source: Charts by TradingView

Reviewing the weekly AAPL stock chart and unlike mid-May when Apple shares were rescued from a very vocal and well-publicized breakdown courtesy of Berkshire Hathaway’s stake hitting newswires, shares appear to be headed lower.

The 200-week simple moving average support being tested right now or the (failed) triple bottom could act as support for AAPL stock. We just don’t think it’s going to be that easy for bulls.

Our view is shares of AAPL have a stronger margin of safety for investors if shares tested the $85 – $87 price zone.

Technically the area has two longer-term Fibonacci supports from 2009 and 2013, as well as a long-term channel line to provide a more meaningful low playing out in the coming weeks.

At the same time, in appreciating that other value investors are already willing to begin their AAPL stock campaigns and a chart which may or may not play out according to our own forecast, an out-of-the-money bull put spread is an obvious choice to begin an investment operation.

AAPL Stock Bull Put Vertical

Looking at the AAPL options board and given the discussed view, the weekly July 8 $90 / $87.50 bull put spread is worth considering.

Priced for 35 cents mid-market, the seller of this put spread is able to collect the full credit as long as AAPL stock is above $90 at expiration in two weeks. That amounts to a margin of safety — or downside buffer — of 3.6% from current levels.

If AAPL stock is above $90 at expiration, the collected credit amounts to a return in excess of 16%. And in the event shares put the vertical in-the-money, the trader can begin accumulating stock for no worse than price of $89.65 and essentially on par with the recent May low.

Even better, because this type AAPL spread can only lose $2.15 based on the current vertical market, theoretically (and sometimes in actual practice), the trader is in position to begin buying AAPL stock at markedly lower levels.

For instance, if AAPL stock was at $85 and at the lower end of our discussed support band at expiration, the trader could use the existing paper loss as their initial long stock position and have an effective purchase price of $87.15. That’s 6.6% below current levels.

Bottom line, with income potential and the opportunity to purchase an out-of-favor Apple stock with a margin of safety that includes stronger value and limited risk, this bullish AAPL put spread makes for a solid alternative to simply buying shares.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/apple-aapl-stock-discount/.

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