3 Trades For Anxiety-Free Profits In The New Year
Go long AAPL, GOOGL, even at record-high levels in SPY
This year saw equity markets soar to new highs. Adverse headlines like the Brexit vote and Trump’s win acted as catalysts, creating sharp spikes in trading. Meanwhile, fundamentals haven’t improved at the same pace as expectations, making for a potential letdown in the S&P 500 and other equity indices.
Even though markets in general seem overextended, many mega-caps still are undervalued. Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are two atop of my list. They are dominant in their field with healthy balance sheets and deep moats around their core cash cows.
Facebook Inc (NASDAQ:FB), while an attractive stock, is in a concerning spot after recent questions over metric accuracy. Still, I like the prospect of Facebook, which has billions of users, but I favor waiting out a few weeks while the headlines abate.
Normally, I avoid chasing prices higher. Markets are at all-time highs. so it makes me nervous risking a lot of money on the long side here. Luckily, the options markets provide hundreds of ways I can set bullish trades with calculated risk.
Many of the mega-tech companies are attractive to me. Even some with lofty valuations like Amazon.com, Inc. (NASDAQ:AMZN). If the market corrects, however, AMZN, being a momentum stock, will likely fall much faster than the averages.
Stocks to Generate Free Profit: Apple (AAPL)
Apple has a cult following of its products, especially the iPhone. It sells out of every widget it makes, so AAPL stock should continue to deliver astonishing financial results for the medium term.
Furthermore, it has a strong cash position that leaves it with options to enter new arenas. So far it has failed at kindling new cash cows. Tim Cook lacks Steve Jobs’ vision.
The Trade: Sell AAPL Nov $80 puts. This is a bullish trade for which I collect $1.35 per contract. From here, I have a 30% price buffer, which is a healthy chance of success. I only sell naked puts if I am willing and able to own AAPL stock at my strike price, even if shares of Apple fall below it. Essentially, I need AAPL to stay above my sold strike through the expiration, or else risk being put the stock.
Stocks to Generate Free Profit: Alphabet (GOOGL)
Alphabet has few serious competitors. It is dominant in the search arena, video and operating systems, especially mobile. It’s even expected to compete in the future of the auto industry, an exciting prospect considering the amount of possible breakthroughs in the next few years.
Fundamentally, GOOGL stock is a solid performer with exciting management. In spite of this, Alphabet’s valuation is still humble enough to make it a low-risk trade for the mid- and long term.
The Trade: Sell GOOGL June $580 put. This is also a bullish trade. I collect $3.20 per contact to open. Again, I must be willing and able to own GOOGL stock at the price of the strike. My breakeven price is $576.20 per share. From current levels, this trade has a 30% price buffer, which again seems like a reasonable risk to take, especially if I like GOOGL as a mid- to long-term investment.
Stocks to Generate Free Profit: SPDR S&P 500 ETF (SPY)
I always like to balance my trades with a hedge. Usually, I use a bearish call spread in the tickers I am trading. But for these GOOGL and AAPL, since they are heavy weights in the equity indices and ETF’s, I will sell bearish risk in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) instead.
Sell the SPY Jun $240/$245 credit call spread. This is a bearish trade for which I collect $1 per contact to open. If successful, this would deliver 24% on money risked.
It’s a calculated risk with 70% theoretical chance of success and a 6% buffer from current price.
I am not required to hold any trade to expiration. I can close any of them at any time for partial gains or losses.
Note: This article originally appeared at investorplace.com. For more articles about options trading, click here…
The author of this article is Nicolas Chahine. Nicolas is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.
Category: Options Trading
