Apple Earnings Season

Blowout earnings reported from Apple this past quarter.  So much so that earnings this past quarter rivalled revenues just 5 quarters ago.

iPads and iPhones were the leading revenues sources with CEO Tim Cook stating that iTVs were still fairly inconsequential.

But don’t mistake that comment for complacency, Apple has its eyes firmly set on taking control of the box too.  In fact, it’s reported that Steve Jobs stated he’d ‘cracked’ it when discussing the possibilities of iTV for the future.

Post-earnings, the question investors ask is how to profit from a company that has already skyrocketed and seems to be on its way to analysts’ estimates of $600 or $666 depending on which you read?

One approach is to not chase the trade but consider a bull put strategy that pays you if the stock stays at elevated levels but allows you the opportunity to purchase the stock at lower levels if it drops.

This approach from our founder and reported on Reuters and the Chicago Tribune is worthy of analysis:

Investors may be reluctant to buy any stock hitting an all-time high. “The $430 region was formerly resistance on Apple, but with the huge gap up after earnings on Wednesday, that level now becomes very strong support,” said Gareth Feighery, a founder of options education firm MarketTamer.com in Philadelphia.

Feighery suggests a strategy that sees limited downside and risk for Apple shares with a so-called February $430-$420 bull put spread, buying the lower strike put and selling the higher strike put. This trade essentially allows an investor to profit from the spread as long as shares don’t fall below $430.

The spread involves the sale of the $430 strike put to finance the purchase of the $420 strike put to collect a premium of $1.39. The strategy offers a risk return of 16.1 percent based on the shares trading at $448.

The danger is if shares fall below $430, and if assigned, the investor would be obligated to buy the stock at $430. The purpose of the $420 put purchase is to limit risk if the shares were to drop precipitously and offers protection, Feighery said.

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