I know I’m not alone on this. Apple (AAPL) stock looks cheap to many investors. Here’s why:
- First quarter revenue was more than twice that of Microsoft.
- First quarter income exceeded Google’s.
- Earnings expectations this year continue to be robust.
- Potential dividend later this year.
So through options, is there a possible trade to try and capitalize on bullish expectations? Buy calls? Sell puts? How about a spread?
You will notice that both the calls and puts listed on AAPL are rather pricey and they are expensive for a reason. High option prices imply (Implied Volatility) significant movement in the underlying. So if you are a call buyer with lofty expectations maybe you could consider entering into a bull call spread with realistic expectations and at the same time reduce the cost of getting into the trade.
This spread would be the purchase of one call and the sale of another call with a higher strike price targeted for AAPL stock by March expiration. You are looking for a gradual rise of the stock to the short strike to maximize your profits. But remember, your profit potential is limited with the sale of the higher strike option.