Apple Stock Holds Up Fairly Well; Could This Bull Put Spread Generate A 262% Annualized Gain?

With many growth stocks tumbling over recent weeks, it’s important to look for strong stocks when trying to find bullish option trades. Apple (AAPL) is one stock showing reasonable strength in the face of broad market weakness.

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According to IBD Stock Checkup, Apple stock ranks No. 1 in its group and has a Composite Rating of 89, an EPS Rating of 90, and a Relative Strength Rating of 85.

Crucial price support sits at 150 to 152.50. 

Apple Stock: Setting Up A Bull Put Spread

Previously, we’ve looked at bullish trades of around one to two months in duration. Some traders prefer trading short-term options, which have the potential to generate much higher gains on an annualized basis. 

Assuming someone was looking to trade a bull put spread on AAPL, she could generate roughly $120 in premium for selling the June 17-expiration 150-145 spread. The trader keeps all of that profit if Apple finishes above 150 at expiration.

The capital at risk on that trade would be $380, so the trade has the potential to generate a 31.6% return in 44 days.

That equates to a 262% gain annualized.

A Variation On The Bull Put Spread

If the trader instead decided to trade a much shorter-term spread in Apple stock, she could generate around $65 in premium for selling the 150-145 put option spread expiring on May 13. This spread can make around $65 on risk of $435 for a potential 14.9% return.

That’s a slightly lower return than the first example in Apple, but only takes 10 days to achieve that return if the trade in the megacap stock works out.

That equates to a 545.3% return on an annualized basis.

Being Realistic About The Return

That’s a huge number, but don’t expect every trade like this to be a winner. Short-term options can be very risky, and hopefully we all learned in Finance 101 that high returns come with high risk. So do your due diligence before using weekly options.

Short-term option trades like this — even in a proven stock market winner such as Apple — are not for everyone. When they go against you, there is very little you can do to salvage the trade.

Please remember that options are risky, and investors can lose 100% of their investment. 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ 

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