Wall Street experts often caution against trading Apple Inc. (NASDAQ:AAPL). Instead they recommend that we own it. I can’t argue against the success of the long-term ownership of AAPL stock, but I tend to tick along a faster clock.
Investing is not all about the dollar returns. There are intangible returns that are often overlooked on Wall Street. I want to be happy while trading. Using options, I rest comfortably knowing that the downside of my worst-case scenario is limited.
Click to Enlarge Just two weeks ago, I shared a write-up on how to trade AAPL stock. Since then, Apple rallied, so my trade yielded over a dollar in profits.
What makes my profits special is that I had zero out-of-pocket exposure. I created income out of thin air. That’s useful, because near all-time highs, I find it difficult to risk $139 per share to buy any stock, even AAPL.
Today I want to reset a similar trade but one that I won’t have to revisit for months.
AAPL fundamentals are pristine. The machine that Steve Jobs left is still producing jaw-dropping results. My biggest worry for its long-term future is its current management. Tim Cook has been unable to bring to market the so-called next big thing.
AAPL Stock Trade Idea
The Bet: Sell the AAPL Jun 2018 $100 naked put for $2.50. This is a bullish trade that that has a 90% chance of success. By selling a naked put, I am committing to buying Apple stock at my strike price if it falls below it. Anything below $97.50 per share would accrue losses to me.
Usually I like to hedge my bet by selling opposing risk. But in this case I will opt out of selling any call spreads. Long term, AAPL is still a money-making machine and I can’t argue against its fundamentals. My worst-case scenario should AAPL crash through my strike makes me long the stock at a 30% discount from current levels.
The Juice (Optional): To be more bullish on AAPL stock, I can buy a debit call position to capture upside move through January, but I will snipe better entry points for this. Once I do, I would be long Apple for free. Knowing that I am already long, I can be patient choosing great entry points.
Learn options as easy as 1-2-3 here. 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.
