All the fanfare around Apple’s new products led to a bump in Apple stock performance Tuesday, but just how far has it come since May 19, 2012? I will tell you why that date is significant in a moment, but until then the answer is 31.1%.
Over that same time frame I’ve managed to make 79% in Apple…without actually owning one share of Apple stock. That’s 3% a month.
You see, it is extremely important to me that investors like yourself invest time in learning how to use alternative ways to invest your hard-earned money. It’s important because unlike your typical investment advice, these techniques are tangible. The strategies rely solely on mathematics rather than the opinions of a few talking heads.
Each month, I give subscribers to my Options Advantage service detailed instructions on how to collect 3% a month in Apple. So far, so good. As I stated before, subscribers have made roughly 79% since I started the Apple Portfolio back on May 19, 2012 with a win ratio of 85.7% (18 out of 21 trades).
Let me take you through an example of how I evaluate each and every investment I make using one of my recent trades in Apple (Nasdaq: AAPL).
The first question I always ask myself when looking at a potential option trade is, “What is the most I can make or lose on this trade?” Fortunately, in the world of options the numbers can easily be calculated so that you can make a logical decision based on your risk/reward tolerance.
On Dec. 27, with Apple trading for roughly $560 and in an overbought state, I decided to sell a few vertical call spreads in Apple. A vertical call spread is an options strategy for those who are bearish or neutral on a stock. In fact, the stock can actually move slightly higher and you will still make a maximum profit.
I sold the 600/605 vertical call spread for $0.42, or $42 per spread. The maximum risk on the trade was $458. At first glance the risk/reward seems off to those new to options. I always get the same question, “Why would you risk $458 to make $42?”
This is where the second question comes into play: “What are the chances that this will be a profitable trade?”
The answer is simple: The trade has a very high probability of profit of over 90%. In fact, I can cater each of my trades to fit a certain probability of profit so I always have an overwhelming edge. Basically, by selling options rather than buying options like most investors, I can create an enormous margin of error.
In this case, as long as Apple doesn’t push past the short strike of my spread, or $600, I will make a maximum profit on the trade. That’s a margin of error of 6.6%. I challenge investors to find a stock trade that allows you to be directionally wrong 6.6% and still make a profit. Again, this is why I use options. I compare selling options to being the house in a casino, but with significantly better odds. And as we all know, the house always wins over the long term.
Finally, I would ask, “What is the expected return for this trade, taking into consideration the max risk/reward and probability?” The expected return would be 9.1% ($42/$458*100).
I hope a few of you will decide to take the plunge and at least investigate the true power of options selling strategies like the one I use for Apple. Yes, they can be risky, but if used properly they are one of the most conservative and lucrative investment tools available. It’s a combination that is impossible to come by in today’s investment arena.
How the iPhone 6 unveiling impacts mobile
Tim Cook wrote, “iPhone 6 and iPhone 6 Plus — which are the biggest advancements in iPhone history…” after unveiling the most technologically advanced phone on the planet with cautious estimates have them selling 200 million of them. While we love Apple, we’re recommending a much less known company today…a company no one is talking about. A company that provides the technology, without which, smartphones couldn’t exist.