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In a comment on my previous article about Apple (AAPL), I was told: "You are wrong just like everyone else. Buy a lottery ticket." Ok, I admit it. Within reason, I do like to play the lottery.

A Ticket Based On Hunches

The comment got me wondering. If I was going to consider a stockottery ticket made of Apple, what would I do? First, I need to look at what I think I know.

As an Apple bull, I believe the just ended June quarter will surprise to the upside, and do so bigger than expected. Apple's own guidance was overly conservative and analysts are moving projections down for reason many observers don't buy into. Looking at historical patterns and combining that with some basic common sense data elements, I simply expect a big beat.

For this scenario, I'm going to go with a June quarter beat at $12.79 EPS. This bumps Apple's trailing 12 month EPS to an even $46.

When momentum was building in the Spring, Apple toyed with an 18 P/E heading into the April earnings call. The response to upcoming earnings has been far more muted and the stock is now handily under a 15 P/E. That leaves a lot of opportunity on the table.

My article also suggested the iPhone 5 could make its appearance in the early part of September. This would give Apple time to push out millions of phones before the quarter ends and allow more time to prep for the holiday rush. Since I suspect this will be the case, I can look for a faster September move than most people are expecting.

The Ticket and Its Potential

I'd take the Sep $765 Call Option for $0.86 ($86 contract). I'll round up to an even $100 investment for the call and trade fees combined. (That's the right to purchase 100 shares of Apple at $765 each on or before September 22.) I won't do a spread to keep it simple and, in true stockottery fashion, I don't want to cap my upside.

Taking my bullish projection for the quarter and my expectation of an early September iPhone 5 launch, it's not unreasonable to consider Apple with a trailing EPS of $46 and a gathering storm P/E of 17.5 as the quarter leads to a close, putting the stock at $805. Such a move would make the $100 option purchase worth roughly $4,000, for a 4,000% return in 2 month.

If Apple beats with $13.29 in June, coupled with the September iPhone 5, that 17.5 P/E could move higher as analysts eat lots of crow and up estimates in big ways. With a small bump to a P/E of 18 and a trailing EPS of $46.50, the stock would trade at $837 resulting in my ticket being worth over $7,000.

Brian Nichols instablogged "Last Chance To Buy AAPL At $600" just days ago. He notes "... with the number of catalysts that AAPL has in the coming months, this stock could be $800 before you have a chance to buy, assuming the company stays on path."

The Downsides Are Many

There's a whole lot that could go wrong and that's why I have to consider this a very risky investment. I should feel very comfortable waving good bye to the $100. It should be obvious that most people do not expect this to be a successful trade. If they did, the cost vs benefit ratio would not be so high.

The quarter could be bad or it could be "just good". Good doesn't necessarily get the stock back up to a 17+ P/E in time for the option to benefit. Some of the naysayers on iPhone units could be right and the iPad could have flopped on the quarter.

Even with a great quarter, Apple's P/E could be cruelly slashed by world events outside of their control. Let's not forget the European debt strife, China landing scenarios, Iran belligerence, US politics (debt ceiling, the fiscal cliff, etc) and on and on. Such risks exist for all stock trades, but are exaggerated with time sensitive options.

The iPhone 5 could end up making no appearance in September at all. This could mean that the push up in P/E the option needs gets moved out into October, missing the September call expiration. Or the iPhone 5 could crash during its on stage demo, like a Microsoft (MSFT) Surface tablet did.

Last but not least, the needed run up will take a lot of market capital. A move to $766 (roughly break-even) would add more than $150 billion in fresh cash to Apple's market cap in the next 2 months. Those who talk about the law of large numbers would consider this highly unlikely, if not impossible.

In Conclusion

All things considered, I feel far more confident in this stockottery ticket than anything I could buy at the convenience store.

Source: Playing The Apple Lottery For $100

Additional disclosure: I own a variety of AAPL calls from July 21st through January 2013. In particular, I opted for a Sep $760 call @ $1 on July 13th, rather than the actual $765 mentioned in the article. With broker fees, my actual trade was over $100 which is why I chose the $765 strike for this article. Also, I am likely to buy or sell options based on market conditions.