Call Options Or Put Options On Apple (AAPL) – Part 2?
Last week, we discussed a call or put scenario for retail/tech giant Apple (AAPL) just after earnings were released. It turns out, put buyers would have immediately seen gains, while call buyers would be in the black if they held on to their options for just a few days. It’s possible that both sides were actually winners in this case (which is pretty rare).
Now, Apple’s trading at $442.78, down 16% for the year, but up 9% since last week. The shares are down 37% from the 52-week high of $697.80, and are up 15% from the 52-week low of $385.10.
Is this an opportunity to buy call options on AAPL after the company’s impressive entry into the debt markets? Or should you buy put options on AAPL because bonds and share buybacks don’t replace a new, excited product?
The bulls make a convincing argument…
The most impressive points of AAPL’s latest earnings release were the efforts the company’s going to in order to please shareholders. The dividend is being hiked, and more importantly, an ambitious share buyback is being undertaken.
So how will the company pay for its enormous $50 billion share repurchase program? Well, management could dip into the company’s massive cash holdings. But why do that when debt is so cheap?
In fact, AAPL has decided to take advantage of historically low interest rates to issue $17 billion in corporate bonds – the largest investment-grade corporate offering on record. Moreover, the company is expected to offer as much as $55 billion in debt by 2015 to cover the share buyback.
Investors appear to be ecstatic over the bond issuance, which provides another ultra-safe investment that offers at least some yield premium over government debt. And, the enthusiasm has carried over to the stock which has taken a sharp turn higher from the lows hit earlier in the month.
But the bears have a compelling case as well…
AAPL management is using the bond issuance, share repurchase, and dividend hike to appease investors. But does that mean the company has no exciting, new products on the horizon?
The company’s actions seem to imply it’s transitioning from a high growth stock to more of an income stock. After all, AAPL has been an investor favorite for quite a while due to its exciting growth prospects.
If those high-growth days are numbered, can AAPL continue to produce exceptional earnings quarter after quarter? What’s more, margins are shrinking. The shareholder friendly actions from this quarter could be a way of masking bigger issues for the former largest company in the world.
Is AAPL’s massive bond issuance enough to overcome the lack of a buzz-worthy, new product?
If you think the bulls are right, take a look at buying the AAPL June 2013 $505.00 calls for around $2.00.
If you think the bears are right, take a look at buying the AAPL June 2013 $380.00 puts for around $2.00.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
