News of an investment elephant entering the room has been confirmed with Buffett’s Berkshire Hathaway taking a $1 billion stake in Apple Inc. (AAPL).
But if you’re looking to follow in those giant footsteps, an AAPL stock bull put spread continues to look more compelling as an investment vehicle.
Let me explain.
Despite the allure of “if it’s good enough for Buffett” optimism, remember two things before you think instant riches are yours if you follow suit.
First, a $1 billion position in AAPL stock is actually small potatoes for Berkshire Hathaway. Investors need only consider Kraft Heinz Co (KHC) to realize this.
The company’s stake in KHC is valued at around $23 billion. Kraft Heinz is also the top holding at Berkshire Hathaway and nearly 25 times as large as its still relatively puny position in AAPL stock.
Need more evidence? Well you’d have to look well past Berkshire’s top 10 holdings before AAPL stock finds its rightful spot in the line-up. As I said, Apple is small potatoes.
Secondly, please remember point one when AAPL stock slides lower again.
The point is, as a long-term value investor, Buffett’s legendary value-centric investment company is not picking a bottom in AAPL stock and going “all in” on Apple.
I strongly suspect as trend-following panic sets in once more, as it did last week, Berkshire’s investment style will invariably work much better for its shareholders — long term that is, as they’ll eventually nab shares at even lower prices.
Know this — it’s periods of greater investor agitation and uncertainty regarding Apple which will allow Berkshire to build a larger position by averaging in as AAPL stock grows increasingly out-of-favor and if they’re lucky, when there’s literally, “blood in the streets.”
Apple Stock Monthly Chart
Click to Enlarge
Currently and with AAPL stock momentum stalling as the Buffett magic wears off, the $1 million — or in this case $1 billion — question might be whether a second break below Apple’s technical support will be the charm for bears?
In our view, bulls and bears can both make money on a move lower in AAPL stock.
Yet, in wanting to rely less on stock price forecasting and liking the longer-term value of holding an Apple position, approaching AAPL stock with an out-of-the-money bull put spread is enticing.
Apple Stock Bull Put Vertical
Similar to early May when AAPL stock was discussed, this strategist likes the idea of selling a put spread slightly above its long-term support area of $85 – $87.50. Additionally, with a value-seeking elephant in the room, this limited-risk strategy makes all the more sense.
Reviewing the AAPL options board and this time around “iLike” the June $90 / $87.50 bull put spread as a way to collect some income or even begin accumulating Apple stock.
With AAPL shares near $94.20, this bull put spread is offered at 40 cents. This is definitely a spread worth putting on the radar — especially if the credit begins to build as Apple shares trade lower.
Looking at this Apple vertical from another angle, unlike a long stock position, the options trader can still maximize his or her return of about 19% if AAPL stock drops 4.45% from current levels into expiration.
Lastly, should Apple stock force an assignment below $90, this spread trader maintains limited risk. That’s nice protection to have in place. However, if the trader really wants to act like Buffett, initiating your own stock campaign for $89.60 or better in AAPL stock isn’t a bad way to start either.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
