Tech stocks have been on fire lately.
For the first quarter, the S&P 500 should finish with gains of around 5.6%. The Technology SPDR (ETF) (NYSEARCA:XLK), however, is pacing for a 10%-plus gain. That includes a nice little burst to end the first three months of the year.
That’s good news for the equity markets, but it does make entry points into winning stocks a tricky feat. Most investors are left waiting for dips that are not coming. And when they finally enter late, sell stops kick in fast on the slightest retracement.
Analysts’ price targets are no help either. They are often difficult to use since they always seem behind the curve.
Me? I prefer investing in mega-cap stocks that are backed by strong fundamentals — companies including Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), or Apple Inc (NASDAQ:AAPL). However, I don’t like to risk a big-up front cost to owning shares, which range from around $145 for AAPL to $890 for AMZN.
Luckily, I have a solution to that — and trading ideas for how to profit off all three of these stocks for free.
How to Earn Free Profits on Alphabet (GOOGL)
Click to Enlarge Alphabet Inc (NASDAQ:GOOGL) has proven management with few flubs on their record. They own several platforms with more than a billion users each — and some aren’t even properly monetized just yet. Sure, search is still the cash cow, but Alphabet is a dominant player in video and a leader in innovating the autonomous car market.
As long as equity markets don’t crash, Alphabet stock is going higher over time. However, instead of risking $850 per share to buy GOOGL, I will simply sell downside risk against proven support levels and let time do the rest.
The trade: Sell a GOOGL Sep $730/$725 credit put spread. This is a bullish trade that has an 88% theoretical chance of yielding 14% on risk. This will surely rival the returns from buying the stock; I believe Alphabet will rally 14% over the next five months.
Selling the put spread allows you to capture gains without a penny out of pocket. You just need GOOGL to stay above $730 through expiration.
How to Earn Free Profits on Amazon (AMZN)
Click to Enlarge Amazon.com, Inc. (NASDAQ:AMZN) is the ultimate growth company. Under the leadership of Jeff Bezos, Amazon has dominated several major industries.
Most notably, AMZN decimated the makeup of the retail sector. More recently, they quietly owned “the cloud.”
Yes, Amazon is highly valued, but that’s only a concern if the company stops growing, which doesn’t appear to be an issue. Furthermore, AMZN isn’t burning cash, and it can turn off the spending spigot at any time.
The trade: Sell the AMZN Jan 2018 $660 naked put for $11 per contract. I have a 90% theoretical certainty that AMZN stock will stay above my strike price. Otherwise, I will be forced to buy the shares at $660 even if they go lower. This would put me long Amazon stock at a 25% discount from current levels.
To moderate the risk, I could do it as a credit put spread and yield 13% with 90% certainty. $649 is this trade’s breakeven point.
How to Earn Free Profits on Apple (AAPL)
Click to Enlarge Apple Inc. (NASDAQ:AAPL) is the giant on Wall Street. It has a massive following that is self-professed to be trapped in the Apple ecosystem. It sells out of every widget it makes, and its customers are committed to paying a premium.
Apple’s financial situation is pristine, too, so this is as close to a sure thing as once can get.
My only long-term worry for AAPL stock is its leadership. Unless he changes his ways, Tim Cook could potentially ruin the company if he continues to fail in presenting the “next big thing.” Iterations won’t last forever, though they’ve been working well for years.
Nevertheless, for the mid-term, I’m happy to bet alongside Apple’s value.
The trade: Sell the AAPL Dec $105 put and collect $1.50 per contract. By doing that, I am committing to buying Apple stock at $105 if it falls below it. So basically I am being paid for a chance to enter Apple long at a 25% discount from here.
For more conservative traders, I can change this to a $115/$110 credit put spread for a chance to yield 13% on risk. The difference here is a finite risk profile, but for a slightly smaller price buffer.
Selling options is risky, especially when selling puts at all-time high levels. Never risk more than you’re willing to lose.
Learn options as easy as 1-2-3 here. 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.
