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Profitable Apple Trades Despite Awful Earnings

NEW YORK (TheStreet) -- I take a lot of junk from Apple (AAPL) bulls. Quite a few send correspondence, often via Twitter, accusing me of having an "anti-Apple agenda."

Of course, I sit around my apartment scheming up ways to talk Apple down. I do this while listening to music on my iPod Shuffle, playing Angry Birds on my iPod Touch and surfing the Mac Web site on my iPad to price out different configurations for the MacBook Pro with a Retina Display I intend to buy next month. (That's a true picture of my Tuesday evening).

Because I hate Apple.

Actually, I love Apple, but I do not allow that fact to cloud my judgment with regards to the trajectory of the company or the stock. When you fall too deeply in love, it's easy to put on the blinders and move lock step with nothing but a rose-colored outlook. That's what many AAPL bulls have done on two critical fronts:

  • For several months, they have discounted the impact of Steve Jobs's absence on the current and future operations of the company; and
  • After Tuesday's earnings miss, they accepted uncritically the view that iPhone 5 will right Apple's near-term woes in the quarter including the holiday-shopping season.

I expand on each of these points in my post-earnings rehash: Apple Stock is Dead; Sell It on a Bounce.

In this article, however, I focus on AAPL trades that I highlighted prior to earnings that actually would have made investors money or cost them less than a straight, bullish directional bet.

First, on July 16, I sounded a cautious tone ahead of earnings. I followed that story up with two articles that offered potential ways to trade the report: Will Apple Miss Earnings Estimates? on July 17 and Don't Sell Apple, Intel, Chipotle and IBM on Earnings, Do This Instead on July 18.

Selling Puts

In the July 17 article, I provided the following rationale in support of a put-option selling strategy:

In this environment, cautious AAPL bulls might consider using options to approach the stock ahead of a relatively uncertain quarterly report. While another blowout or even record quarter would not surprise me, there's no question that investors should, at the very least, pause ahead of that thought. No clear catalyst exists to drive such powerful numbers from Apple this time around.

I determined that it might make sense for the bullish, but cautious AAPL shareholder (or non-shareholder, for that matter) to sell a put ahead of earnings. You make this trade for several reasons, namely:

  • To generate immediate income
  • To set yourself up to potentially get long on a pullback

I suggested considering the sale of the AAPL August $570 put. At the time of publication, you would have collected about $9.95 per share -- or since options use a multiplier of 100, you would have made premium income of $995 for every put sold. (For the record, I never use or advocate naked puts, rather I prefer cash-secured puts.)

Stock quotes in this article: AAPL 

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