Everyone is looking to Apple’s (NASDAQ:AAPL) earnings announcement after the close on Wednesday, Jan. 23. A less capital intensive and lower risk way to play Apple is to turn to the Apple ecosystem and the world’s leading supplier of NAND flash memory technology, Sandisk (NASDAQ:SNDK). Sandisk announces earnings at the same time – and the premiums on the puts and calls indicate the market has no idea what could happen. The performance of the company should be anywhere from expectations to a clean beat. The more important number is their forecast for NAND demand and margins and 2012 is looking up as a good year for NAND manufacturers with slower declines in average selling prices and therefore stable to expanding margins.
What to do? Sell some weekly puts. They have incredible premiums.
Sandisk is trading around $48. If you sell a $45 put that expires this Friday you will get around $45 in cash per contract, and if they expire worthless you will see a 1% return in a few days and 50% on an annualized basis. If you are more of a trading pirate and believe that Sandisk will report out a good Q4, you can sell the $48 put for an astounding $1.87 or $187 a contract. If they expire worthless that is a return of 4.2%, a 207% return on an annualized basis.
Yes, you could be put the stock if it falls. You can avoid this by rolling the puts. Or if you are put the stock, Sandisk is a great company, so you can just turn around and sell weekly calls and average down your cost and generate cash every week.
Think about it.
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