Apple Inc. (NASDAQ:AAPL) finds itself ensnared below the $200 mark, residing in a trading range that presents an opportunity for short sellers of out-of-the-money (OTM) put options. This strategic move can offer existing AAPL shareholders an avenue to generate additional income, particularly with the stock seemingly stuck in a lateral movement. Let’s delve into the specifics of this trading approach and its potential benefits.
Current Apple Stock Status
As of the morning of December 18, 2023, AAPL is priced at $194.77 per share, a slight dip from its recent high of $198.11 on December 14. Despite a modest 2.7% increase from the previous month’s price of $189.69 on November 17, AAPL appears to be consolidating within a trading range.
Opportunity for Short Sellers
The stagnant nature of AAPL’s stock movement creates an advantageous scenario for short sellers of OTM options, especially in the realm of short-put plays. This strategy allows existing shareholders to earn supplemental income, a welcome prospect given AAPL’s relatively low dividend yield of 0.50%.
Shorting OTM Puts: A Viable Strategy
The article explores the efficacy of shorting OTM puts, emphasizing its potential for AAPL holders. It details an example involving a put option with a $187.50 strike price expiring on January 5, 2024. Despite the option being 3.80% out-of-the-money, its bid side premium of 60 cents presents an opportunity for short sellers.
Rolling Over the Trade
The narrative suggests the possibility of rolling over the short put trade, capitalizing on the higher premium for the new option. The net result is an immediate yield of 0.32% for three weeks, translating to an annualized expected return of 5.44%.
Execution of the Strategy
The article breaks down the practical steps for executing this strategy. Investors need to secure $18,750 in cash and margin with their brokerage, obtain approval for cash-secured puts, and then initiate a “Sell to Open” order for the chosen put contract. The immediate yield is calculated, and the process is reiterated every three weeks, potentially yielding additional income for existing AAPL shareholders.
Risk Mitigation and Bottom Line
The piece underscores the controlled risk associated with this strategy. Even if AAPL’s stock falls, the shareholder must use the secured cash to buy shares at the agreed-upon price, potentially reducing the average cost of the stock. The bottom line emphasizes that this approach offers existing AAPL shareholders an avenue to earn extra income during a period of trading range stagnation.
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