For years, Apple (NASDAQ: AAPL) shares have been out of reach for the average investor as the price per share has soared into the hundreds of dollars. Sure you could pick up 10, 20, 50 shares and still maintain a respectable risk allocation in a conservative portfolio but for a lot of investors the high price has been a deterrent.
Many investors (and their cash) have been sitting on the sidelines, hoping, wishing and waiting for a way to be a part of one of the greatest corporate success stories in history.
Well, wait no longer….
AAPL has announced a 7 to 1 split. Companies will typically split their stock when they want to raise cash. The reduced cost of the shares bring new money off the sidelines and typically drives the company’s market capitalization higher. WOW what an opportunity, now anyone can afford to buy AAPL.
So what will happen? As I mentioned, the intention is to raise capital so I can say with a reasonably high probability that the demand at the new low price will just push prices higher as new money finds its way in.
This won’t take effect for a while, so how can we participate now? Today’s prices are still sitting around $566.00, however, by using an option strategy, we can get in ahead of the crowd. Remember, with options you can participate without having to invest a lot of money, you just put up a little premium to control the stock for a specific period of time giving you full upside potential with a limited amount of risk. We will actually buy a CALL Option giving us the right, but not the obligation to buy AAPL shares at a specific price on or before a specific date. This means that if we are correct and AAPL takes off upwards in price we get to keep all upside, but if we are wrong and it just drops in value then we risk a small premium that we paid.
If you buy 1 January 2015 Call at the $630 strike at a cost of $735.00, after the split takes place, this will become 7 January 2015 Calls at the $90 strike for the same premium. You now control 700 shares at $90.00.
If a feeding frenzy starts on the newly priced AAPL shares, and the stock goes to $150.00 by Jan 2015 that means you make $60.00 times 700 shares = $42000 for your $735 premium, now that’s a home run!!
Consider an Option play on AAPL, learn more at www.learn-to-trade.com
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