Apple Inc. (NASDAQ:AAPL) is in the middle of a breakout. While it was a surprise to many, we profited from seeing it coming. Just recently, I wrote several strategies to go long AAPL stock, and they have all paid well and without trouble.
Twelve days ago, I wrote about how you can profit from owning AAPL or trading it. This was in addition to last month’s $5 profit per contract out of thin air trading Apple stock when it had appeared to be too late.
Today, I want to repeat the success I’ve had trading AAPL stock long. But this time I am doing it in a smaller account, so I will use credit put spreads instead of selling naked puts.
How to Trade AAPL Stock
The Bet: Sell the AAPL Oct $110/$105 credit put spread. This is a bullish trade for which I collect 55 cents per contract to open. The 20% buffer from current price gives me a 90% theoretical chance of success. If Apple shares stay above $110 per share, the trade will yield 12% on money risk.
Usually I like to balance my trades by selling opposite bearish risk, but in this case I will refrain. I will count on the Warren Buffett effect that long-term AAPL is a hold. Buyers should step in on down weeks and defend the stock for me.
I could sell credit call spreads in the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) to create some balance, but I don’t feel it’s necessary at this time.
Earlier, I noted that I like selling naked puts in sure things like AAPL and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). So I will offer the trade, but I only do this if I am willing and able to own the stock at the strike sold.
The Alternate: Sell the AAPL Oct $105 put naked. This is a bullish trade for which I collect $1.25 per contract to open. My breakeven point is $103.75 per share. Anything lower would accrue losses for me.
If AAPL stock falls below my sold strike, I would be put the stock at that price even if it’s much lower. Therein lies the open-ended risk unlike that of a credit put spread.
I am not required to hold trades through expiration. I can close either of them for partial gains or losses at any time.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
