How to Pluck Apple Inc. (AAPL) Stock off the Money Tree

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Apple Inc. (NASDAQ: AAPL ) needs no introduction. The company has arguably the best selling trinket of all time (the iPhone), and it has an insanely faithful clientele that seems to have no concerns over price. The only equally fanatical people on earth are bulls of AAPL stock.

Click to Enlarge Experts currently believe that Apple management is focused on finding the next big thing, but there are no sure winners yet. There are a few candidates, and I think the Services division might have the lead right now.

That's in part because Tim Cook's acquisitions and investments seem like duds to me. Buying a headphones company and investing in a Chinese Uber -like company seem lame so far given the choices they have at their disposal and all that cash.

Fundamentally, AAPL stock isn't overpriced, even at all-time highs. But Wall Street often undervalues Apple shares. So that alone isn't an assurance of near-term price support.

I do worry about Apple's level of debt. No, the company's balance sheet is not in trouble … but the trend is worrisome. AAPL is growing debt at a rapid rate, which could compromise its cash buying power should they need it. In the past four years, long-term debt went from $17 billion to more than $75 billion.

Nevertheless, this uber-bull equity markets leaves little room for entries into bullish trades. Today, I will take advantage of this small dip in AAPL stock to create income out of thin air. I call it a dip while I chuckle, since it's still near all-time highs.

Key to my strategy is that I don't mind buying Apple at lower prices. The idea is to sell puts below levels I don't think shares will reach in the near-term.

How to Trade AAPL Stock

The bet: Sell Oct $135 put options and collect $1 per contract. Here I have an 85% theoretical chance that the price of Apple shares will stay above my strike. Otherwise, I will accrue losses below $134.

Selling puts near all-time highs can be daunting and require considerable margin. But I can accomplish the same goal by selling spreads instead.

The alternate bet: Sell the Oct $135/$130 credit put spread, which carries considerable less absolute risk. Yet if it wins, the spread still will deliver 8% in yield.

The alternative here is spending $157 per share buying AAPL stock outright. If you do that, you have no room for error, and you must have a significant rally to profit anywhere close to the spread. I have a 14% buffer with either of my setups, so Apple stock can fall and I can still profit.

As safe as this may sound, selling options carries risk, so never bet more than you're able to lose.

Learn how to generate income from options here . Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic .

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The post How to Pluck Apple Inc. (AAPL) Stock off the Money Tree appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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