Apple (NASDAQ:AAPL) stock has regained momentum, rising above the 50-day moving average, although it closed off its peak yesterday. In a unique approach to trading AAPL, we explore an options combination strategy that could lead to substantial discounts on stock acquisition or the possibility of a profitable outcome when the stock moves laterally.

The Trade Strategy

Start by selling to open the AAPL November 17 put with a strike price of $175, which was trading at approximately $3.10 yesterday.

Add a bear call spread:

• Sell to open the AAPL November 17 call with a strike price of $190, trading at around $2.00.
• Buy to open the AAPL November 17 call with a strike price of $195, priced at roughly $0.95 yesterday.

The sale of the put generates around $310 in option premium, while the bear call spread contributes an additional $105 in premium. In total, this options combination trade accumulates $415 in premium.

Trade Structure

At trade initiation, this position carries a delta of 20, which roughly equates to holding 20 shares of AAPL stock. This delta value will adjust as the trade progresses.

Potential Outcomes: Let’s analyze a few possible scenarios for this AAPL stock option trade, assuming an expiration date of November 17:

• If AAPL maintains a sideways trajectory and closes between $175 and $190, both the sold put and the bear call spread will expire worthless, resulting in a total profit equivalent to the $415 premium received.
• Should AAPL dip below $175 at expiration, you’ll be required to purchase 100 shares at $175 due to the assigned put. However, your net cost basis will be $170.85, thanks to the $415 in option premium, representing a 5.84% discount from the Thursday closing price.
• If AAPL experiences a rally above $195, the bear call spread will incur a maximum loss of $500, but this will be largely offset by the $415 premium received, resulting in a minor loss of $85.

Company Insights

Apple stock is currently rated as a Weak Buy, with a 32% Buy rating according to Barchart Technical Opinion. The short-term outlook suggests a weakening trend.

The market appears to be in an overbought state, signaling caution regarding a potential trend reversal. Among 29 analysts covering AAPL stock, 17 advocate a Strong Buy, 3 recommend a Moderate Buy, and 9 suggest a Hold rating.

Apple’s business primarily revolves around its flagship iPhone, but the Services portfolio, including cloud services, the App Store, Apple Music, AppleCare, Apple Pay & licensing, and other services, has become a significant revenue source. Furthermore, non-iPhone devices like Apple Watch and AirPods have gained substantial traction, making Apple a dominant player in the Wearables and Hearables markets.

In addition to its hardware offerings, Apple designs, manufactures, and sells iPad, MacBook, and HomePod, which run on various software applications. Apple also provides subscription-based services such as Apple News, Apple Card, Apple Arcade, the new Apple TV app, Apple TV channels, and Apple TV+, a subscription service.

Risk Mitigation

It’s essential to have a risk management plan in place for any options trade. Some traders opt to include a deep out-of-the-money long put, such as the November 17 put option with a $150 strike price, which can be bought for approximately $30. This put option limits losses below $150 and reduces overall capital at risk.

Remember that options carry inherent risks, and investors can potentially lose their entire investment. This article serves solely for educational purposes and should not be considered a trade recommendation. Always perform your due diligence and consult your financial advisor before making investment decisions.

Summary

This innovative options strategy can be a lucrative approach to generating income from stocks you want to own. If you end up with an assigned stock position, you have the opportunity to sell covered calls against it, enhancing your potential returns. However, it’s crucial to start with a small position until you gain a comprehensive understanding of the strategy.

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