After the events of the past few days, I feel as if I must thoroughly explain my position on Apple (AAPL). On Monday, I wrote an article "Why Taking Profits Is Never Overrated". The point of this article was to explain the strategy behind taking profits. The article was NOT meant to say you should run from the exits in regards to Apple, but some tended to misunderstand the article. On Tuesday, another author published a piece called "Why Taking Profits is Not The Best Strategy". This article states that taking profits is a bad idea, and that my stance on certain stocks, like Apple, will lose money in the long run.
Now, the author made an important point that taking profits is bad idea if you don't consider the valuation argument. That is an important piece of the investment decision making process. However, when it comes to Apple, I simply stated what you could do with the money you received from your profits, and I also suggested how you could stay long Apple while taking some money off the table.
I'm not here today to say that I am right, or the other author was wrong. I am here to further examine the Apple situation. Now, if you read my original article, you know that I recommended a trade involving buying deep in the money calls, specifically the July $500 calls. If you've read my previous articles, you know that I've pitched other trades involving Apple. So let's determine what exactly to do.
Yes, you can (own Apple stock)! I'm not saying avoid the stock, or that you have to take profits in the name. However, I have received a few questions from readers asking what to do with Apple before its earnings report later this month. These readers are scared of holding Apple through earnings, so for them, it might be a good idea to sell before earnings, especially if they bought at $500, $400, or even lower. Like I've said in the past, you can always buy Apple again. Just because you sold it, doesn't mean you can't buy it again.
For those not afraid of Apple's earnings (basically those who are holding forever), you can hold Apple stock. However, there are other ways to make money off the name without owning the stock, which at its current price, can be rather expensive for smaller investors.
Now the trade I recommended the other day was a deep in the money call. Buy a July $500 call for about $111. This trade allows you to be effectively long 100 shares of Apple, but for less than 20% of the overall price it would cost you to hold 100 shares. Note, I said that if you sold Apple at $600 (after buying at $400), you'd still have your principal plus about $9,000 in gains when you initially start this trade. Now, Apple is up about $30 since I recommended the trade, and the calls are up about $25. You haven't made the exact dollar amount, but in terms of percentages, you are making a ton, and right now, you only have $13,600 at risk, instead of about $63,000.
Now another way to make money off of Apple, especially lately, is selling puts. This strategy has worked exceptionally well as Apple has run up. Now, along the way, I've recommended selling $375, $425, even $525 puts. For the theoretical options portfolio on this site, I recommended selling the July $575 puts for about $38. I could buy those back today for about $21, making $1,700 per contract traded. In one of my recent Apple articles, I also recommended a similar trade involving the $570 calls. If Apple stays flat or goes higher, this trade makes you money.
Now, if you really want to take some risk, I proposed a trade (in the options portfolio) that involved buying an October $590 call for $59.95 and selling an October $600 put for $58.85. If Apple ends up at $630, $650, or even higher by October, this trade will make a killing, and again, you are not long the stock.
Now, I've also recommended getting into one or a few of Apple's suppliers. My favorite supplier is Qualcomm (QCOM), who makes the chips that go into the iPhone. Qualcomm, like many other names, is near its 52-week highs, and also pays a small dividend, which will be roughly in-line with the yield of Apple, when Apple actually starts paying a dividend. Qualcomm is in great shape to benefit from the iPhone 4S that has sold well, as well as future iPhones, like the potential iPhone 5 that is rumored to be coming soon. Two other names I have mentioned are Nuance (NUAN) and Corning (GLW). Nuance is the company behind Siri, but also has multiple other lines of business, so it is not 100% dependent on Apple an the iPhone. I also recommended an options trade involving Nuance in my theoretical options portfolio. You could also buy Corning , which makes the gorilla glass in smartphone screens. Now, Corning is dependent on LCD sales, which involve other computer and television items, so the stock hasn't been a recent winner. However, if Apple remains strong, Corning can still do well, and if Corning's other products can hold up, you could see a huge rise.
In summary, I am not telling you to sell Apple right now. I am telling you can be long the name, but you don't have to necessarily own the stock to make money off of it. There are multiple options trades you could use, which allow you to take part in Apple on a cheaper dollar basis. However, these trades involve much more risk, and you could lose all of your money and then some, in a few of the trades. You can also buy an Apple supplier. If you want to remain in Apple, do so, but you can take profits as well. You can have your cake and eat it too.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.