Apple Earnings: Go Long, Sort Of

There are plenty of ways to generate cash on this bargain-of-the-century stock

   

I am a big, big Apple (NASDAQ:AAPL) bull – long term. Tomorrow, who knows what earnings will look like. So play it safe and trade with house money.

At present AAPL is the cheapest stock and cheapest growth company – with massive earnings and massive cash – on the planet. The stock is currently trading at its lowest multiple of earnings – ever. Yes, ever. It picked up share in phones in January and February, it was the only company to see sales growth in personal computers in 2012 (IDC), it saw iPad sales grow 48% in 2012 and iPhone sales grow 27%. Even a weak first half of 2013 will be better than the performance of virtually any company in the S&P 500. That being said, factoring in growth, the stock is trading at one third to one half the typical S&P 500 stock, meaning it is fairly valued between $1,020 and $1,240. No kidding.

What to do? Think about a short term trade using some idiot’s cash, the idiot being someone who thinks Apple stock can go down another 20% and stay there for nine months.

If you sell the January 2014 $320 puts, you collect roughly $1,600 per contract. If you want income, stop right there – that is 5% in nine months, 6.7% on an annualized basis of the stock stays above $320. Of course, if you really think Apple would not be the buy of a lifetime at $320, now or nine months from now? If so, stop reading, go buy stock in a uranium mine or a biotech stock with the promise of curing erectile dysfunction, baldness and bad breath with just one pill.

On the other hand, if any of my logic has gotten through, consider using that cash and buy this week’s $400 calls. they cost around $11.50, you can trade contract for contract and also keep some cash. If you think the stock will pop – I am totally uncertain – buy the $420. If you think this will take time, buy the July $440. You see where I am going with this – use current bearishness to generate gobs of cash selling longer-term and ridiculously-priced puts, and use that cash to speculate on some upside. The downside is the stock could fall. That would make the puts  worth more than you sold them for, and your capital would be tied up until the stock rises enough to enable you to buy back the puts for less than you received when you sold them.

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