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Apple Inc. Stock Is a Winner, Even Heading Into Earnings

Nicolas Chahine

The Trump trade has never been stronger. We now have tangible proof that it’s working. Last night we learned that Apple Inc. (NASDAQ:AAPL) will take advantage of the new tax laws to settle its tax bill on the massive overseas cash pile. As a result, it will inject billions into the U.S. economy in the form of new campuses, new jobs, wage raises and bonuses.

AAPL is not the first to do this, but since it’s the largest public company on the planet, it tends to wave a huge green flag for bulls. So therein lies my opportunity; the bearish thesis got even weaker on this.

In this uber-bullish equity market, I want to reload long in AAPL stock. I know that the popular adage is to own Apple, not trade it — I could do both at the same time. Staying involved in AAPL options accomplishes that, except I have the advantage of a buffer zone unlike those who own the shares.

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The fundamentals are a slam dunk for Apple stock. It sells under 20 price-to-earnings which is astonishingly cheap given the quality. For context, AAPL’s price-to-earnings ratio is one half of that of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) or Facebook Inc (NASDAQ:FB).

How to Trade AAPL Stock

Technically, AAPL stock is in a breakout, but there should be more room to go. While my trade doesn’t need a rally to profit, I will realize my gains faster if it continues higher into earnings. The potential target on this rally should be around $184-per-share.

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The next statement won’t win me any popularity awards with AAPL fans, but I do have a big bone to pick with Tim Cook.

It is my opinion that he has failed to achieve the potential that exists in this golden goose. I hope that he will spend some of this tax-free cash to bring back true innovation into the AAPL rhetoric and I don’t mean new colors or glass.

The bottom line is that I know that AAPL fundamentals are solid and this is value I can bet on. So I sell downside risk into it and generate consistent income to stay engaged. In essence, I own a long AAPL position but with room to spare.

The Trade: Sell the AAPL Feb 23rd $162.50 put for $1.50. Here I have an 85% theoretical chance of success. Otherwise, and if the price falls below it, I would suffer losses below $161.

Those who want to mitigate the risk that comes with selling naked puts can sell spreads instead.

The Alternate Trade: Sell the AAPL Feb 23rd $162.50/$160 credit put spread. The spread has the same odds, but it would deliver 15% yield on risk. Neither trade requires a rally to profit. In fact, the stock can fall an additional 9% and I could still retain maximum gains.

Ultimately, investing in stocks is fraught with danger especially going into earnings, so I never risk more than I am willing to lose.

Get my newsletter for free here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

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