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Bite Apple Inc. (AAPL) Stock In Spite of Bland Leadership

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

For the past two years I’ve been openly critical of how Tim Cook has been running Apple Inc. (NASDAQ:AAPL). Yes, he has kept it on its rails and the stock price is now higher, but I am confident that it would have done just as well even without a CEO.

Bite Apple Inc. (AAPL) Stock In Spite of Bland Leadership
Bite Apple Inc. (AAPL) Stock In Spite of Bland Leadership

Source: Shutterstock

Apple, so far, is still an iPhone company. I know many experts argue that the company’s other facets have been improving especially services, but the bulk of its P&L is still the iPhone.

I am not dissing the company as my beef is with the wasted potential of this gem under the leadership of Mr. Cook. I can just imagine what Elon Musk or Jeff Besos would accomplish if they were leading AAPL.

The good news is that Apple stock has been a long-term winner regardless of leadership. The company is on rails and an absolute money printing press. They run out of every widget they make even though its products are more expensive than the alternatives. Its users don’t mind over-paying for as long as they perceive value.

Fundamentally, the company is cheap with a price-earnings ratio in the teens. But that’s been often the case where opposite to Main Street who always pays top dollars for the products, Wall Street always underpays for the AAPL stock. Compare that with Salesforce.com, Inc. (NYSE:CRM) which carries a P/E inching on 500 or Amazon.com, Inc. (NASDAQ:AMZN) at 200.

Here it’s the exuberance and potential they see in the leadership that makes the difference. Many experts often cite the lack of innovation as their bone to pick with AAPL and I definitely agree with that point.


Click to Enlarge 

Technically, Apple stock emphatically spiked this past April to new highs but has since completely repriced it out. This also happened between February July of 2015, but here we are higher again. The fact that the rally faded doesn’t mean that it’s all down hill from here.

There is support just beneath current price and more about $10 lower. If there is continued weakness in price the battle zone will likely be somewhere in the middle where I am confident that Warren Buffett will help defend the shares.

As long as the equity markets in general hold up, AAPL has a good chance of keeping its trajectory. Regardless of leadership, I think this cash machine is still on rails for a few more years. It’s on auto-pilot during calm skies.

So today’s trade is to generate income from AAPL stock without exposing myself to the risk of spending $144 per share and without any room for error. I will sell risk underneath recent support.

The Bet: Sell the AAPL Aug $130 put and collect $1.25 per contract to open. This is a bullish trade which has a 85% theoretical certainty but if price falls below my strike then I must own the shares. I would accrue losses below $128.75. It is important to note that this will need to survive an earnings report around which volatility spikes.

If I am unable or willing to own AAPL shares then I would sell spreads instead of naked puts.

The Alternate Bet: Sell the AAPL $130/$125 where I could yield 10%, but with limited risk. In either case, I need price to stay above my strikes so I can retain maximum gains. Compare this with me buying the shares now and hope that they rally to $158 just to match the yield of the spread.

Investing is risky so I never invest more than I am willing to lose.

Learn how to generate income from options 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.

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