Since hitting an all-time high north of $156 in September, Apple’s stock has pulled back. The world’s largest publicly traded company has shed north of $220 billion in market capitalization since its peak. I have said before that “so goes Apple, so goes the U.S. market.” So here is how to trade Apple stock right now.
It doesn’t take much analysis to accept this premise. Apple (NASDAQ:AAPL)comprises more than 11% of the weight on the Nasdaq 100. It represents about 6.2% of the weight of the S&P 500. And it’s a big component of the Dow Jones. It’s part of more than 300 exchange-traded funds. And the market capitalization is larger than the gross domestic product of all seven nations. So, yes, it’s a big deal.
The downturn in Apple is tied to several factors. First, the broader U.S. markets are historically overvalued. We haven’t seen an average P/E ratio for the S&P 500 this high since the downturn of the Dot Com bubble. There is plenty of chatter about consumer sentiment, inflation, market valuations, and supply chain worries.
But I prefer to look at the microeconomic level for Apple. The company recently announced that ongoing semiconductor challenges will affect production of the iPhone 13 ahead of this busy holiday season. A recent report by Bloomberg suggests that the company might produce about 10 million fewer units than its initial forecast.
Now, I’m not sure how much further the stock could fall. But I do know that any uncertainty about how to trade Apple stock creates a unique opportunity for investors. If you’re a conservative investor – you might be sitting on a lot of cash. You might have capital sitting in a bank right now. And if that’s the case, let me give you a liquid way to generate more revenue than just sitting capital in a bank.
A Buying Opportunity and Income Generator
If you have $10,000 in cash sitting on the sidelines, you might be waiting for a drop in the market. Rule one is to never assume that such a dip is coming. So, you could sit that $10,000 in a bank and generate a whopping $8 per year at a 0.08% interest rate. Or you could sell cash secured puts on Apple stock.
If you sold the September 16, 2022 $100 put, you would earn $250 today, or 2.5% from your investment. You would effectively set aside that $10,000 and in the event that the stock falls to or under $100 by the expiration date, you could be assigned the stock.
Consider it a gift if you are able to buy the world’s largest tech company at $100 per share. The odds are that the stock won’t hit that level, but it’s possible in the event of another big market selloff. Remember, this is a liquid trade. If you need to access the money, all you need to do is close the position by purchasing the same contract “Buy to Close.”
You can give a bank effectively an interest-free loan or you can generate 16.75 times your money using the market to your advantage. It might not be a lot of money, but it’s certainly better than the alternatives found at your local banking institution.