We’ve all heard the argument that it’s wrong to trade Apple, Inc. (NASDAQ:AAPL). Many prominent experts rage over those who dare to trade around the price action of AAPL stock. It is confusing to investors to figure out who is wrong. Sure, I could spend a few hours parsing data and calculating returns while making assumptions of entry and exit spots. Or, I can accept the fact that they are both right to a degree.
On the one hand, it is undeniable that owning Apple stock for decades has been a winning proposition. But so was trading around the chop. It comes down to what works for each us individually. Most investors enter positions but get stopped out when things go wrong. So I will refrain from judging which group is smarter.
I found neutral ground using AAPL options. I commit to Apple long-term, especially when it falls out of favor, and leave myself room for error. I do so with no money out of pocket, thereby rendering my risk to a fraction of owning the stock.
Last month, I created $5 per contract out of thin air trading AAPL stock when it had appeared to be too late. Even more recently, I repeated for another $1.2 yield in mere days.
This strategy is easy to do on equities that are solid and what some would consider sure things like AAPL or Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). I am less easy about doing this with say Netflix, Inc. (NASDAQ:NFLX). With stocks that are perceived to be risky, such as Netflix, I would need to be pickier with my entry and exit points.
Today, I want to repeat performance regardless of which whale bought Apple or who sold it.
How to Trade AAPL Stock Here
The Trade – Long AAPL: Sell the AAPL 2018 $105 put for $2.70 to open. The 22% price buffer from current levels translate into a 90% theoretical chance of success. I only sell naked puts if I am willing and able to own AAPL stock at the strike sold. Some investors prefer spreading the risk into a credit put spread instead, and that works too.
Click to Enlarge I have been a longtime harsh critic of Tim Cook, so I don’t count myself as an AAPL bull, but I do know how to do math. Apple’s valuation makes sense at $100 or even $200 per share given current conditions. So I do trust selling risk against that fact rather than chase hope that Tim Cook is able to grow the company.
For now, he has a boulder that is hard to stop, and I can count on buyers to support the price.
I realize that markets are at all-time highs and precariously perched. So I could buy sacrifice puts in AAPL stock to guard against a market crash. For example, I could spend 20 cents buying the AAPL Jun $100 put to limit my loss if we fall off a cliff in the next four months.
I am not required to hold my trades through expiration. I can close it for partial gains or losses at any time.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
