Apple (NASDAQ:AAPL) is no longer the darling of Wall Street or of individual investors. A pity, as it is beyond cheap as a stock and beyond excellent as a platform for generating profits if you are an investor looking for appreciation, an income investor or a speculator.
You may be annoyed at Tim Cook for not being Steve Jobs, and for Apple commanding only 65% of the tablet market and not 85% by yearend, but if Apple has a bad tear, it should still grow 15%-18% and will probably grow between 20% and 25%. And when Apple grows revenues, it typically grows profits at the same rate.
Using the second grade math – some might argue the only math I seem to be capable of – Apple is selling at a two-thirds discount to the S&P 500 based on the next two years of growth, earnings and cash on the balance sheet: Translation: Apple, if priced as other stocks in the S&P 500, is worth roughly $1200-$1240 a share.
OK, markets, as well all know, are less than perfect. The stock is now said to be stuck like Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) are and have been for an eternity. They are growing in mid-single digits – not a good parallel. Someday Apple will catch up with the market – wanna be there when it happens? You should. Simply put, buy it now. (I own it).
If you own it, or buy it, sell (write) calls against your shares as soon as you get your trade confirmation. Sell them every week if you can keep an eye one it, every month if you cannot.
Selling weekly calls will generate 15%-25% in income, though writing monthly calls will garner about three to five points less depending on market volatility.
But what if you own less than 100 shares required to sell a call? Help is on the way. Next week on March 18, mini-options on AAPL, therefore mini-calls, can be sold backed by only 10 shares. No more excuses.
Sell weeklies two to three strikes out if you sell them the Friday before expiration, one to two strikes out if you sell them the Wednesday prior to expiration. The stock is in a trading range of $420-$440 for now.
If you don’t want to own shares, sell naked puts. You will generate the similar cash returns; you just lose out on an appreciation in the underlying shares. If you are totally skeptical, look at the premium on a weekly put two hours before the close on Friday afternoon. Sell puts (or calls) that expire in two hours and you can do 7%-9% a year. No kidding.
When Apple moves, it moves. You can do two things: Buy calls or buy LEAPs and sell (write) calls.
To buy calls, you have to determine the trading range. Look for upcoming events and catalysts and hold your nose – stuff can always happen to wipe you out. The best pricing seems to be monthlies two strikes out.
Something almost as potentially lucrative with less risk – if you believe in the stock – is to buy a LEAP, let’s say a $440 strike, for around $60. You can sell calls against this LEAP. Since you are not paying $440 but $60, your potential return from selling calls is seven times greater. That is seven times 15%-25%. So even if the LEAP expires worthless, you may come out ahead.
Of course, if you’re still on the fence, before you do anything go to an Apple store. They are pretty crowded for a company selling at a two-thirds discount to the S&P.
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