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Saturday, November 19, 2011

Trading Strategy To Make 30% On Apple stock

Trading Strategy To Make 30% On Apple stock : Apple (AAPL) has long been on my favorite equities and has a core position in my portfolio. It is also a stock I have advocated for quite some time as I think it is significantly undervalued by the market despite its huge market capitalization. In addition, to having a long term position in the stock; I also have used option strategies several times over the summer to take advantage of when Apple and the market have one of their predictable sell-offs.

Apple pulled back again Friday to a point I was comfortable adding bull option spread strategy. The stock is just over its short term technical support of $360 to $375. This is the position I took yesterday that I hope gives me a 30% return on capital in a short period of time. It is a strategy believers in the stock can employ to enhance their returns or acquire stock at a lower level while limiting their downside in this very volatile market.

Option Strategy: Sold the Jan 12 $360 puts and bought the Jan 12 $350 puts via a bull market put spread for a net credit of $3.10.

Scenario 1: Apple holds the $360 level or rises from current price level when the option spread expires in January 2012. I think this scenario is likely given technical support, low valuations and strong demand for Apple products in the fourth quarter. If this situation holds to prediction I make my $3.10 a share spread while only tying up only $6.90 of collateral in my brokerage account

Scenario 2: Apple breaks technical support of $360 and heads to a lower level by option expiration. In this situation, I get “put” Apple for a price adjusted $356.90 a share while limiting my maximum loss during the time of the option spread to $6.90.

4 reasons Apple is a strong buy at $375 a share:

1. Despite the successful launch of the iPhone 4S, and stellar revenue/earnings growth; the market continues to doubt Apple will be able to continue to roll out devices the market demands especially after the unfortunate death of Steve Jobs.

2. The stock is dirt cheap. Apple sells at just 9 times forward earnings if you subtract its huge cash hoard on its balance sheet.

3. It is finally making huge inroads with the corporate market with its iPad and iPhone product lines. This will be a huge new revenue stream going forward. The iMac also just passed the 5% market share level.

4. Apple is significantly under analysts’ price targets. The median analysts’ price target on Apple is over $500 and several shops have price targets of over $600 on Apple. For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today

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