It's time to make a play for Apple (NASDAQ: AAPL), advises Goldman Sachs' options research team. And they suggest a very specific way to do it.
With both October earnings and the holiday shopping season coming up, Goldman's Katherine Fogertey and John Marshall suggest buying the January 115-strike call on Apple for about $5.70. Since a call represents the right to buy a stock for a given price within a given time frame, this represents the right to buy Apple shares for $115 between now and mid-January.
Because Apple shares have to rise above $115 by more than the $5.70 being laid out, this represents a bet that the stock will rise above $120.70 in four months, or more than 9 percent above Wednesday's closing price.
For Goldman, this appears a distinct possibility. Simona Jankowski, Goldman's (new) Apple analyst, sees Apple shares rising to $163, on the back of stronger-than-expected iPhone and iPad sales that will spur higher-than-expected revenue and earnings.
"Our survey results indicate that the iPad is the top consumer electronics product for the upcoming holiday season, with 16 percent of respondents planning to buy one," Goldman wrote in the note released Wednesday.
When it comes to the options side of the equation, Fogertey and Marshall observe that the price of bearish put options on Apple versus that of bullish calls has risen, "suggesting that option investors have recently become more nervous about the upcoming catalysts for shares."
That, in turn, suggests that buyers of those calls could be getting a bit of a bargain. And if Apple shares do rise to $163 by January, this trade will yield profits of $42.30 per share, or more than seven times the amount paid.
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But not everyone is on board with the trade. Dennis Davitt, a long-time options trader now with Harvest Volatility Advisors, views the options contract as expensive.
"If volatility in Apple is high, you want to be selling options," rather than buying them, he said. Meanwhile, call options on the S&P 500 are much less expensive than calls on Apple.
"If the goal here is to make money by this big rally in Apple, I'd much rather just go out and buy calls on the S&P," Davitt said, given that the latter options are so much cheaper.
Of course, Apple is the biggest S&P component, meaning that a rally in the tech giant would tend to be positive for the overall market.
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