Selection 4 out of 5 is the one the fanbois have been waiting for: Apple Inc. (AAPL)

music selection: “Rock Me” — Liz Phair

Apple is redonkulously cheap.  P/E is under 17, P/B is under 6, and P/S is under 4.  Which might look a little pricey but you can’t forget AAPL is the King of Cash.  Thirty three point oh nine six billion in cash and short term is a lot of bones.  There is more.  Apple is growing sales at about a 7% a year clip.  And Margins are about 39%.  Current yield is 1.60%.

As far as options returns, AAPL150717P00125000 sold today for 2.05.  That comes out to 14.25% annualized for putting capital at risk 42 days.  A good return for an issue with a lot of safety built in and a growth kicker.

Devour your prey raptors!

Write Puts On Big Cheap Tech Part 4 of 5

Never miss another opportunity to devour prey!

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11 thoughts on “Write Puts On Big Cheap Tech Part 4 of 5

  • June 7, 2015 at 5:00 am
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    Could you please walk me through, for this put option, how much OTM%- 125/128.65=97.16, thus 2.84% OTM, right ?how much downside protection, 125-2.05=122.95/128.65=95.56=4.44 downside protection and yield/annualized yield,205/12500×52/6=14.21 this would represent?
    Getting to understand these, but slowly.

    I really appreciate your patience and generosity

    Thanks

    Vish

    Reply
    • June 7, 2015 at 5:58 pm
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      Vish,

      Strike is at 125 (that is your “capital at risk”.) Your premium income is 2.05 which makes your break even 122.95 (strike less premium). If we assume the closing price of 128.65, the stock can fall as much as 5.70 before you go into the red. Your downside protection is thus 5.70/128.65 or 4.43%. Not bad. Annualized yield is [premium / capital at risk] * [365 / days in trade]. In this case, 2.05/125 * 365/42 = 14.25%. Obviously, if you enter the trade on Monday, you will have to use that day’s premium and 39 days in trade. Hope this helps

      -The Lizard King-

      Reply
  • June 8, 2015 at 3:06 am
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    Just found your blog. Love it! Hilarious and informative, I’m slowly making my way thru all the back posts. Thank you for posting.

    Reply
  • June 8, 2015 at 3:41 am
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    Definitely does, have been reading the material you have sent.
    BTW, Love the Music Metaphors for the options, some not familiar.
    I guess a Jim Morrison fan ?

    Thanks

    Vish

    Reply
    • June 8, 2015 at 2:18 pm
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      Vish,

      Jim Morrison is an all time great. He is curiously under-represented in my Pandora feed. I must remedy that. Right now, Breaking Benjamin is my favorite band.

      TLK

      Reply
  • June 8, 2015 at 7:36 am
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    Fair enough. Sill trying to make sense of covered calls and put writing and these updates are great. How do you decide which stock to write puts on if that’s your strategy. How/where do you screen for potential investments. I understand that covered calls are written on stocks you already have in your portfolio.

    Reply
    • June 8, 2015 at 2:23 pm
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      DH, I don’t have hard and set rules. I do have an obsession with risk however. You can earn stupid fat premiums on Chinese solar companies that are churning out quarterly losses but you can lose all of your capital at risk when they suddenly go bankrupt (dumbo T. Rex move.)

      My preferred targets are insurers with a 10 year history of profitable underwriting, Big Cheap Tech, Dividend Aristocrats, and anything that is gushing free cash flow. Turn offs include high amounts of debt and weak or inconsistent gross margins. That all is a long way of saying capital efficiency matters. I prefer a company that can continue to earn profits without reinvesting large amounts of capital. Thus, a candy company is preferred to a railroad. But obviously price matters. You can’t over pay even for a great company.

      Stansberry & Associates has some free articles on their site and an education section. I often times get ideas from there. For example, they were the first to turn me on to Big Cheap Tech. Their arguments were compelling and the financial numbers checked out.

      Devour your prey!

      Reply
  • August 3, 2015 at 11:49 pm
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    Hi Lizard King!

    I was wondering if you employ any “exit” strategies. I have a similar AAPL 121 PUT now ITM today. Do you have predefined stop losses for closing out positions or you take assignment and write 10% OTM calls against it?

    Appreciate your help and keep up the entertainment

    James

    Reply
    • August 3, 2015 at 11:54 pm
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      Hey James!

      I only write puts on things I’m happy to own at the strike price. So there is no predefined stop loss. So far, I have *always* taken assignment and written the 10% OTM calls. Exiting the position before being called away is limited to a situation where either the thesis has changed or I need to redeploy capital to a ‘screaming buy’.

      Reply
  • August 4, 2015 at 1:46 am
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    Thanks for the quick reply man! I’m still working and contributing to my funds and it gets me nervous! You are in withdraw phase and seem to be doing alright!

    I shall continue to hold and remain patient.

    Reply

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