Barron’s tip: Sell Apple puts

From It’s Time to Bet on Apple Now—Here’s How in this week’s magazine ($):

The end of days seems nigh…

Volatility is now sharply elevated, and cash-secured put options offer investors a way to monetize fear by creating or enhancing positions in blue-chip equities they could maintain for at least three to five years—a market cycle. (A put option gives investors the right to sell a stock at a certain price and time.) Could stocks still go down after doing this? Yes, so conviction, cunning, and longevity are key.

Everyone has a list of companies with compelling themes—and, ideally, reliable and competitively attractive dividends—and such stocks are worth considering even as market risks remain.

Consider Apple. The stock is off about 11% this year. [Not to mention 35% off its all-time-high.] The Street cheered as Apple became the first trillion-dollar company, but it now worries iPhone sales have peaked, and the stock has been pummeled.

This seems to be a parlor game. The Street bullishly promotes Apple for a few quarters or years, and bearishly frets if a new product fails to redefine the technological experience. Then investors take profits and knock the stock around until a sign emerges to show the company is fine. If you agree with this view, it’s possible to get paid to buy the stock below its 52-week low.

With the stock just under $151, investors could sell Apple’s July $150 put for about $15. The risk: The stock sinks below $150, forcing investors to cover the put at a higher price or to buy the stock at $150. If Apple is above $150 at expiration, investors keep the put premium. During the past year, Apple shares have ranged from $149.63 to $233.47.

This is an aggressive trade. Investors who want more distance between the put and stock price can consider selling the July $140 put for about $10.75.

 “Fear and time are often an investor’s great allies,” says Michael Schwartz, Oppenheimer’s chief options strategist.

My take: Barron’s-worthy advice? You guys know better than I.

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