In short, if Bottarelli Research is right, then this could be our last chance to buy the stock anywhere near $100.
But instead of buying Apple at the market price, a “10% Trade” could offer us the opportunity to collect safe, double-digit income while waiting to buy shares at a slight discount to what they’re currently trading for.
As I write, Apple is selling for $101.02 per share and the December 20, $100 puts are going for $4.00 per share.
For the sake of simplicity, let’s say our “10% Trade” involves selling one of these puts. We’ll also exclude any trade commissions to help keep the math easy.
In short, there would only be two ways this trade could work out.
On one hand, we’d get to generate a 20.6% annualized yield from Apple without even owning the stock. That’s over 10 times the stock’s “regular” annual yield of 1.9%.
On the other hand, we’d get paid $400 in cash, immediately, for the opportunity to buy Apple at $100 per share (which is a slight discount to what it’s currently selling for).
If you like safe double-digit income and the shot to own Apple at a discount to its current price, then both of these options are much more compelling than simply buying the stock at the current market price.
Let’s take a closer look at each scenario…
Scenario 1: AAPL falls below $100.00 by December 20
If AAPL falls below $100 by December 20, we’ll be obligated to buy 100 shares at $100 per share. So we’ll need to set aside $10,000 for this trade.
In exchange for our agreement, we would be paid an instant $400 (100 shares X $4.00 per share).
This money would be deposited into our accounts immediately.
Taking this income into consideration, our cost-basis would drop to $96 per share.
That’s a 5.0% discount to the $101.02 share price that AAPL is selling for as I write.
Scenario 2: AAPL stays above $100.00 by December 20
If AAPL stays above $100 by December 20, our put option contract will expire worthless and we won’t buy the stock.
However, we’ll have kept the $400 in income.
Taking that income into account, this works out to a 4.0% return on what our purchase obligation would have been ($4.00 / $100) in 71 days.
If we can repeat these results over the period of a year we could generate a 20.6% yield from AAPL without even buying shares.
Here’s another way to look at it: Apple pays a 1.9% annual dividend yield to its current investors.
But this “10% Trade” could DOUBLE that yield — remember, we’d generate a 4.0% return — in a fraction of the time and without even owning the stock.
This idea with Apple is just one more example of why I’m such a big fan of “10% Trades.”
If you’re looking to safely boost your income on stocks you’d be interested in owning anyways, I encourage you to look more into these opportunities.