Grab Your Quick Cash from the ‘Apple Effect’

by Michael Shulman | March 7, 2012 4:05 pm

Apple's big iPad announcement today [1]The “event of the week” was the introduction of Apple’s (NASDAQ:AAPL[2]) latest iPad product to the world. Not only is this a big deal among technophiles of the world, but it can provide investors with a “quick-cash” trading opportunity.

At 10:00 a.m. Pacific Time, Apple CEO Tim Cook unveiled “The New iPad” (not the iPad 3), which has the same external appearance as the iPad 2 but upgraded internal features. Some of the highlights include a new display with better color saturation and four times the pixels as its predecessor[3], a new chip for better graphics, voice dictation capabilities, and a better camera. Many apps will be upgraded and optimized for the new device. Pricing will be the same (starting at $499) and pre-orders begin today before the device hits shelves on March 16. And while the iPad was the flavor of the day, Cook also announced a new-and-improved Apple TV[4], which features a new interface and support for 1080 HD content.

Every time Apple announces a new product or service, the shares will move — sometimes for good, sometimes for bad. It’s when Apple is reacting to these events that I like to try and collect extra cash from the “Apple effect.”As bloggers were streaming the iPad news across the wires, AAPL took a tumble, falling as low as $523.30, a drop of 2.5% from the open and a slip of 1.3% from Tuesday’s close. AAPL closed mere pennies higher than its final resting place on Tursday.

Apple is not just the largest market-cap company in the world; it is a stock on fire despite its recent pullback. It has become the best brand in the world[5], the most respected company in the world and a company that has an enormous amount of headroom to boost sales.

And then there are the beneficiaries in the Apple ecosystem of suppliers. It is not just the companies with their names on a chip or a component part. There are companies benefiting from the great secular changes in the computer marketplace being driven by smart phones and tablets, whether these devices are made by Apple or not.

The leading beneficiary is SanDisk (NASDAQ:SNDK[6]) — the world’s top maker of NAND flash memory, the specific kind of memory that goes into smart phones and tablets.

Prices as of 4:00 pm ET, 3/7/12: 

So let’s pocket some quick cash from the latest Apple hype by selling the AAPL March week-two $530 puts for $4.00 or more, an 0.75% gainer if it expires worthless, around a 39% gain on an annualized basis. Remember, if you are considering this trade, you must be willing to either 1) roll out the puts to a later date if the stock moves the wrong way or 2) own the stock at $530.

If you own Apple shares already, consider selling the March, week-two $540 calls. The biggest risk to this covered call (if AAPL rallies during the remainder of the week) is the surrender of some possible upside.  At this point, you can always opt to buy the stock back once the price action normalizes. If you sell that call at around $1.40, your return is 0.26%, or 13.5% annualized.

Or, you can cash in on the Apple “ecosystem” effect by selling the SNDK March, week-two $48 puts – you can get north of 30 cents and SNDK has very firm support at the $48 level.  That’s a 0.62% return in a couple of days, a 32% annualized return.

Your risk would be if the stock goes down and you have to buy back the position and sell next week’s put, tying up your capital a bit longer. The alternative in this scenario is to fulfill your obligation of buying the shares at $48; SNDK is a steal at this price. You could then execute a covered call (selling the March monthly $48-strike call) and generate more cash and income in the process.

And thank the world’s fastest-growing consumer products company for the extra cash.

Michael Shulman is editor of Options Income Blue Print[7]. Learn more about trading weekly options in this free short video[8].

For purposes of disclosure, Michael owns Apple shares at the time of this writing.

  1. [Image]:
  2. AAPL:
  3. new display with better color saturation and four times the pixels as its predecessor:
  4. also announced a new-and-improved Apple TV:
  5. the best brand in the world:
  6. SNDK:
  7. Options Income Blue Print:
  8. free short video:

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