It seems there is always a great deal of attention being paid to Apple Inc. (Nasdaq: AAPL).
Today I’m going to show you how Apple can give us a 50% gain – and that will pale in comparison to my backdoor play, which could net in excess of 100%.
I believe that putting Apple in the Dow Jones Industrial Average will help to stabilize its correlation to the market’s benchmarks even more.
You see, Apple is acting more and more like a bellwether stock, raising its dividend on an annual basis all the while buying back shares. Apple’s equity often moves its own way, regardless of global or regional circumstances.
For example, in the last 200 trading days, AAPL shares moved with the S&P 500 just 12% of the time. Apple almost looks like a defensive play when you think about it that way, and that’s exactly what hedge fund managers see.
But along with the move to the Dow comes perhaps the biggest factor in Apple’s expected rise: its product introductions…
This Chart Predicts Apple’s 50% Gain
The announcement of lighter and faster MacBooks is nice, but it’s the Apple Watch that is grabbing most of the headlines these days. I can tell you that watch is going to be on a lot of peoples’ “Buy” list, including mine.
The stock has peeled back from its closing high of $133 in February to its current price of around $124. The chart below shows us a possibility.
AAPL: Entry cost $125 AAPL JAN16 100 Call: Entry cost $27
100 shares = Cost $12,500 1 Contract (100 Shares) = Cost $2700
With $200 Target Reached:
AAPL: Profit +$75 AAPL JAN16 100 Call: Profit at $73
$75 x 100 = $7500 $ x 1 contract (100 shares) = at $7300
ROI: 40% ROI: Nearly 300%
As you can see, we have reduced our cost and total risk on this trade by nearly 80%, have a time horizon of 10 months, and if we hit our price target, the return on our original investment is more than 7 times that buying the stock!
The takeaway is that when options are used correctly, they can be a great investment!