AAPL Covered Calls and Naked Puts
AAPL (Apple, Inc) is off its highs from late last month and seems to be finding support just above 90. The long term trend line for AAPL points up using the lows from August, late February and this week. Also, using the high from October and the lows from February might provide further support around 84. The 50 day and 100 day moving averages are also showing support just below 90. To double check me, I looked at schaeffersresearch.com where I see AAPL they rate it 7. That’s another good sign as I have had success coupling Schaeffer’s ratings with my charting and fundamental research.
Speaking of fundamentals, AAPL has no debt. YoY quarterly growth is outstanding, but I can’t imagine it being sustained at that rate though. Based on projected earnings, the forward p/e is only 23.16. This puts the p/e in the historically low range according to the Ford Equity Research report dated 4/13/07.
If you don’t want to buy the stock at its current price, selling naked puts could be a great move. Selling the May 90 put would reduce your cost down to around $87 and selling the May 95 would reduce your cost to 89 if AAPL does indeed drop at all. If AAPL climbs, that is a substantial profit for one month.
All of this together makes the May covered calls and naked puts at 90 look like a good opportunity and even the May 95 if you want to leave some room for some stock appreciation too. I have 100 shares with a covered call that expires tomorrow at 90 and is slightly ITM now. I plan to buy it back for a good profit and then will rewrite the covered call for June expiration at either 90 or 95. June options for AAPL aren’t trading yet, at least not on Ameritrade, but should be attractive for my “long-term” approach.
The downside is that AAPL has no analyst sell ratings and only 3 holds out of 27 analysts. This doesn’t leave much room for upgrades. The short ratio is only 1 which leaves a lot of room for the shorts to issue a beating.
I believe longer term AAPL will be a winner so I’m sticking with it.
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Pingback by The Downside of Covered Calls, AAPL Fights Back
[…] Man, I debated it and debated it, but decided to sell a covered call on AAPL on Monday, see my Greed post. I was planning to wait until after earnings came out on Wednesday, but got spooked on how I was loosing on NYX. I covered, luckily OTM. Since then AAPL hasn’t looked back and I ended up leaving $500+ on the table. I considered waiting because I thought they’d beat earnings, like last quarter, which they did. Last time around, I did the same thing and like this time I’m pocketing a nice profit, which could have been more. That’s the downside of covered calls. They treat me right on most trades, but every so often I get smacked with a feeling of regret that I could have made more. The bright side is that at least I bought my April AAPL call back and will have an extra ~$800 in two months from the transactions. […]