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Selling Puts on a Split Apple

Everything's coming up Microsoft

We’ve been waiting for this day for a long time, and it’s finally here.

We’ve wanted to sell puts on Apple (NASDAQ:AAPL), but it’s simply been too expensive.

You see, when a company’s stock price is high, the options that trade on that stock are also going to be expensive. This can make it difficult to trade these options in a retail portfolio, especially if you are just getting started.

That’s been the case with AAPL options for years now. They have simply been too expensive to include in our trading strategy. That is…until now.

After the Split

AAPL options are no longer too expensive to put in the portfolio because the company decided to split its stock. But what exactly did the split do?

When a stock splits, the number of outstanding shares increases and the price of the stock falls. In AAPL’s case — since it was a 4:1 stock split — every existing share of AAPL was split into four shares on Aug. 28, and the price of each share was divided by four.

Imagine you owned one share of AAPL that was worth $500, and it went through a 4:1 split. You would now own four shares of AAPL that are each worth $125. The total value of your AAPL holdings didn’t increase. Your holdings are still worth $500 (4 shares x $125 = $500) after the stock split. You simply own more shares that trade at a lower price.

All of this is great news for us because the drop in AAPL’s share price has made AAPL’s options much more affordable. This puts us in a great position to take advantage of AAPL’s incredible bullish uptrend.

Why AAPL?

AAPL has been soaring higher for years. It was one of the first stocks to fully recover after the COVID-19 bear market, and it shot higher — accelerating its bullish trend — after the company’s latest earnings announcement.

Daily Chart of Apple, Inc. (AAPL) — Chart Source: TradingView

After breaking out of a bullish “pennant” continuation pattern just above $125 at the end of August, the stock has finally pulled back, which is boosting the value of AAPL’s put options.

That $125 support level would make an excellent strike price, and like our recommendation on Microsoft (NASDAQ:MSFT) yesterday, we think an aggressive strategy could be best.

Traders looking to sell a put on this stock could look at late September or early October options, which would likely offer a good premium. Just remember, if you set an expiration farther out, the trade is riskier.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/selling-puts-on-a-split-apple/.

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