Still Hungry for Apple? Here’s How to Snag Shares for $350…

Published Fri, Jul 27th, 2012   Lee Lowell, Income Specialist

As many of us know, Apple (Nasdaq: AAPL) came out with quarterly earnings on Tuesday that fell short of analysts’ expectations.

Louis Basenese pointed out yesterday that this has only happened one other time over the last 25 quarters. The rare event caused investors to sell off shares to the tune of roughly $25 per share.

It’s tough to feel bad for Apple shareholders, though, considering the stock has rallied over $450 since 2009, gaining a whopping 300%.  And with this past performance in mind, many analysts and investors are seeing the recent pullback as the perfect opportunity to buy before the company’s share price explodes again.

Not so fast!

Recall, Louis also cautioned that buying shares at this level could be a huge mistake, given the current headwinds the company’s facing.

However, if you’re still itching to buy Apple shares, there’s a way for you to purchase the stock at a massive discount to current prices. That way, you’ll have a built-in measure of safety in case shares continue to face downward pressure as Louis predicts.

Here’s how it’s done…

Pick Your Own Purchase Price

While Apple’s currently trading at $570 per share, I can show you a way to purchase shares for $350. This would save you $220 and allow you to buy the stock at a level not seen since July 2011.

All you need to do is implement a strategy called “naked put-option selling.” It might sound complex. But it’s just a fancy way of saying “name your own price for shares.”

It’s kind of like a Priceline.com (Nasdaq: PCLN) for buying stocks. Only with put-selling, you know exactly what stock you’re buying into. Not to mention you get paid cash up front for each trade.

You see, when you sell a put-option contract, you’re obligating yourself to buy a stock that you want – at the exact price of your choice. 

At the same time, the put-option buyer is handing you an instant cash payment that gets sent right to your trading account. So, essentially, you get to purchase your favorite stocks at bargain-basement prices, while getting paid cash at the same time.

Good deal, right?

Now, to get a better idea of what this strategy entails, the best place to start is by looking at an option chain that shows the different levels Apple’s put options are trading for.

To the right, you’ll see a simplified version of what Apple’s put options looked like yesterday when the stock was trading for $574…

The first column shows the “strike price” for each option. This is essentially where you get to choose how much you’re willing to pay for the stock.

After selecting the $350 strike price, shift over to the “bid” and “ask” columns. The bid price indicates how much someone’s willing to pay for it. The ask column shows how much investors are trying to sell it for.

Based on yesterday’s bid price of $1.01, each put option you sell would give you at least $101. (One option contract equals 100 shares.)

Great. But where does buying Apple shares at $350 come in?

Well, by selling the options, you’re on the hook to purchase shares if they fall down to $350 before they expire. Since the options above expire in November, that gives you four months to wait for the stock price to fall.

But what if shares don’t fall that low?

It’s a good question, considering that shares would need to take one hell of a tumble in order to reach that price by November.

If the stock price stays above that level, you won’t get to purchase shares at $350. However, you still get to keep the $101 you received for each contract sold initially, no questions asked.

So it’s truly a win-win.

You can customize the trade any way you want, too.

For instance, the more contracts you sell, the more you make up front. So by selling 10 contracts at the $350 strike price instead of just one, you’d pocket $1,010.

You don’t have to go with $350, either. If you’re okay with potentially shelling out $400 for shares in November, then you’d pocket at least $219 for each contract, based on the chart above.

You can choose a different expiration date, too.  Other months will offer different prices for the options.

For more details on how to use this strategy, including a steady stream of highly profitable put-sell recommendations from yours truly, check out my Instant Money Trader. Just call our Trading Services Team at 888.570.9830 or 410.454.0498 for more information.

Ahead of the tape,

Lee Lowell