You gotta love options – selling them, not buying them. And if you really have to love selling Apple (NASDAQ:AAPL) puts.
The stock has been pretty wild the past few days as the ignorant, the nervous, and day traders – aren’t they one and the same? – have moved the stock up and down faster than you can download one of the more than 500,000 apps available for the iPad.
Oh, excuse me, isn’t the iPad failing? Isn’t that what I read in somebody’s column, or what I heard from some blow-dried pundit whose opinion is worth less than the coffee served in the waiting room at television networks reliant on blow-dried pundits? Or did I read the iPhone is not selling well? I guess 2 million units in China in the first three days of legal sales does not mean anything when there is free coffee at stake.
Yes, I am an AAPL bull – I own it and I sell puts, which is a bullish options trading strategy. The thinking is that when you sell to open (write) puts for, say, a $1,000 credit to your account, as AAPL’s stock price rises, those puts will decrease in value – perhaps even drop to zero – and you can buy back to cover the puts at a much cheaper price, or even worthless.
Yesterday I sold to open (shorted) AAPL Jan $560 puts. Yes, that takes a lot of capital. But I am up 3% just 24 hours later without any risk – at least to my mind there is no risk. If a put runs away from you, you roll it or take ownership of the stock.
And who would not want to own AAPL at $560? My target for AAPL is the stock should go to $1,000 within the next two years, though it could happen as soon as this quarter. To me, AAPL’s value is worth $1,240 to $1,400 depending on how you value the S&P 500.
AAPL’s core, super-hard technical support is around $520. Traders begin to move in and out around $540. When you look at selling a put, split the difference – look at $530, something I have written about here.
And teach yourself to ignore some of the volatility. When those blow-dried, so-called experts on CNBC scream, “AAPL is down 15 points!” that is the same as being down $1.50 on a $54 stock or 15 cents on a $5.40 cent stock. Which sounds scarier?
Yeah, yeah I know supporting a short AAPL put position ties up a chunk of capital. But if you had sold just one contract, you would have made $1,669. Enough to buy great newsletter services – hint, hint – for several years. As a Christmas gift for someone you love, of course.
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