Despite the fact that Apple, Inc. (AAPL) is already down ~20% this month… it could always go lower. Don’t shoot the messenger

To be fair, I am not necessarily suggesting that Apple retests its low of $142.00 from last December, but there are certainly some potential general market headwinds out there (e.g., global slowdown, inverted yield curve, slowing corporate earnings, etc.).

Not to mention the fact that Apple is still right in the crosshairs of the trade war with China.

Now the goal of this article is not to predict exactly how these factors will affect Apple’s stock in the coming months. Nor am I going to lay out a bunch of fundamental reasons why the stock should be going higher despite the market’s backdrop (there are hundreds of articles out there that already do that.)

That said, my goal for this article is to highlight an alternative way to trade Apple… that can not only reduce your potential downside risk, but can also turn the stock into a true income-generating gem.

Squeezing Income From The Apple

Again, I’m not here to debate fundamentals… but I think most of us can agree that there is a chance that Apple could go lower from here. And I think all of us can agree that a lot of income is always better to have than a little income.

Unfortunately, I can’t force Apple send shareholders more of that cash hoard (although that would be really cool!). But I can show you a strategy that I like to use to turn a low-yielding stock into a high-yielding income all-star.

The strategy that I am referring to is called a cash-secured put strategy and it’s really simple to implement.

By selling a cash-secured put, you have an obligation to purchase the stock at a predetermined price (strike price) on or before the expiration date (if the buyer of the put option wants to sell you the stock). However, the put seller gets to generate income while mitigating downside price risk. Cash-secured puts essentially act as a limit order for dividend stocks you want to add to your portfolio (but you get paid to put the order in!).

Apple is currently yielding only 1.7%. Obviously, nothing to get excited about from a dividend perspective (especially with more potential downside on the horizon). But we can supercharge that income with a cash-secured put strategy.

As shown in the table below, AAPL is currently trading 7.9% above our Buy Zone of $154.00-$164.00. (I know I said I wasn’t going to get into fundamentals, but the Buy Zone equates to roughly 14x consensus forward EPS of $11.45, a 10% discount to Apple’s historical trailing P/E ratio).

As such, the July19 $165.00 strike cash-secured put provides a great alternative to buying the stock right now.

The break-even price on this trade (i.e., net purchase price if exercised) is $161.50, which gives us an 8.8% margin of safety below the current price before we would have to purchase the stock.

On top of that, this trade pays a premium yield of 2.2% over 49 days, equating to an annualized yield of 15.9% (or ~9x the annual dividend yield). Assuming the stock price stays above our strike price of $165.00 between now and expiration, we get to keep our 2.2% premium. Then we can rinse and repeat the same process with another option to keep the income stream going and realize an amazing annualized yield.

Our downside is having to purchase the stock at our break-even price. I don’t know about you, but I would be happy buying Apple below $162.00 per share right now (so it’s kind of a win-win situation).

This sounds like a great risk-reward trade-off to me!


Regardless of the fundamentals, the general market headwinds could send Apple’s stock lower. However, a cash-secured put strategy can help reduce that downside risk and squeeze a significant amount of income from the Apple in the meantime!

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!