Generate Extra Cash Selling Apple Stock Put Options
Here is another example of selling puts on strong company's to generate extra income!
Apple Inc. is a great company to use the put selling strategy on as the stock and option markets are very liquid.
Apple is a wonderful business to own long term and is very cheap relative to the overall US Stock Market. It has great financial metrics sporting 28% operating margins, 36% return on equity, 14% revenue growth and a super low Price to Earnings (PE) ratio of 12 times earnings. The company also pays a reasonable dividend of 2% which has been growing at 10% per year.
Additionally, there are an upward of 40% of all iPhone owners who have a device that’s more than two years
old. As we all know in the smart phone business a two year old phone is ancient. This means roughly 140 million iPhones users are waiting to upgrade. This pent-up demand could create the largest amount of Iphone's sold in a six-month period. KGI Securities’ Ming-Chi Kuo is already predicting that Apple’s iPhone 8 will shatter previous sales records set by the iPhone 6 and iPhone 6 Plus (120 million units) in 2014. He believes suppliers are preparing to meet demand for as many as 150 million units.
These factors should easily keep the share price above $100 / share and presents us with a wonderful opportunity to generate the income we need buy selling a put option.
As a reminder when selling a put you agree to purchase the shares of stock at the strike price if the put owner decides to exercise the option. So by selling a put we can generate income from the put option price sold (called premium) and potentially buy the stock at a discount to today's price.
The stock appears to have nice support around $112 where the 50 day moving average is see chart: http://stockcharts.com/c-sc/sc?s=AAPL&p=D&b=5&g=0&i=0&r=1482439321290
I am interested in selling the January 20th 2017 $112 strike Put Option @ $0.88 or better. This provides a potential annualized return of 10% ( {[$0.88/$112]/28 days to expiration} * 365 ). I would be happy to purchase Apple shares at $112 if the price falls below this level on expiration day but the best scenario is the stock never reaches this level and the option expires worthless (meaning you keep all of the option premium without having to purchase shares). If the option expires worthless and we are able to repeat the option sale 12 times per year we receive a respectable 10% return with little effort.
Please let me know what questions you have and what additional information you would like to see in these posts. Thank you.
Note: Each option contract represents 100 shares so be sure you have a large enough portfolio where one stock position of $11,200.00 does represent too big of your investment pie. Only you as an individual can decide what percentage of your portfolio you wish to risk in any one company
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.
Something else to consider is the price of the puts, which reflect some implied volatility, or downside risk to the stock that'd work against you in the trade. If the puts are not priced high enough to cover future expected losses, then it's a losing bet, no matter what we think of the fundamentals of AAPL.
Further, this is all just probability, but for the average trader realized losses up front can be devastating even if long horizon expected returns are positive.
I'm a fan of augmenting portfolio strategies with options, just need to consider all angles.
Here are some additional resources :
http://growthstockwire.com/3329/how-to-collect-the-world-s-safest-double-digit-yields
http://growthstockwire.com/4047/you-can-safely-earn-double-digit-annual-income-streams
I am just trying to create the same strategies for the Steem Community free of charge.
The more the put selling strategy is studied and understood, it seems to be to be a safer alternative to buying the stock outright. However, the strategy works best when you actually want to own shares in the company at the strike price that the put option represents. Then it is really a win win as you either, at expiration, own the stock at a lower price than the current market is offering or you keep the option premium and are able to sell a future months option to generate more income.
yeah it's certainly an interesting strategy, the long run returns should be about the cost of insurance that market participants are willing to pay to protect their own downside. expected returns should oscillate around that with prolonged periods of higher returns and intermittent periods of sharply lower returns (relative to underlying). Stocks, themselves, have positive expected returns over long horizons, so i can't image the spread in this type of strategy being much higher than that + an insurance premium...or maybe just the insurance premium. Anyway, def worth looking into more and having fun trading...i enjoy options trading myself, but haven't seriously researched long horizon expected returns for this strategy.
This was very well written, thanks for sharing it. I am curious do you ever sell the calls as well to maximize the profit potential of the the trade? I realize this turns it from a bullish strategy to a nutral one but if you sell a far out of the money call you can still acomplish the same goal.