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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 115

There’s obviously a lot of uncertainty when it comes to all earnings forecasts for 2020, and it’s pretty much a given that this stock itself will miss initial forecasts in Q1. But the company looks poised to be one of the blue-chips best positioned to rebound whenever the virus storm passes.

Cabot Profit Booster 115

Before we dive into this week’s new idea, I wanted to talk a bit about the market and our positions. Clearly, it’s been a harrowing three weeks as the S&P 500 is down approximately 30% … essentially we have been through a crash that investors will be talking about for years to come.

So what does this mean for our positions? Clearly there has been some pain—though, because we sold calls and collected a premium, our breakeven on these stock purchases is much lower than if we bought the stock outright. That obviously doesn’t fully insulate us from a meltdown like we’ve seen, but does highlight how selling covered calls reduces risk/breakevens.

Should the market continue to decline I will continue to sell existing positions. However, should it stabilize, I will adjust existing positions to create even greater yield. Time will tell …

The Stock – Apple (AAPL)

There’s obviously a lot of uncertainty when it comes to all earnings forecasts for 2020, and it’s pretty much a given that Apple itself will miss initial forecasts in Q1. But the company looks poised to be one of the blue-chips best positioned to rebound whenever the virus storm passes.

Several new products are awaiting rollout, including the newly designed iPad Pro 2020, with a 3D time-of-flight camera allowing users to manipulate images. Also coming this year is a new version of the entry-level iPhone 9 and the hotly demanded Apple Watch Series 6. But the most anticipated release of the year is unquestionably the iPhone 12 (originally scheduled for April but now pushed back at least a month, probably longer, due to coronavirus).

While analysts have cut earnings expectations, this comes on the heels of the firm’s biggest earnings and revenue quarter ever in Q4. Moreover, both Apple and Wall Street anticipate a strong rebound in the last half of the year on the back of demand for its many new product releases. Apple CEO Tim Cook has also vowed to put $163 billion in cash to work this year, which could include more buybacks, dividends or M&A. Obviously, the near-term outlook is cloudy, but bigger picture, we think Apple could be one of the first places big investors put money back to work when the crash ends.

Technical Analysis

aapl

AAPL built a huge base from mid 2018 through September of last year, then enjoyed a great, persistent advance to 327 or so before going over the falls with the entire market. The stock’s initial decline was ugly, but it’s actually shown some resilience since; even today it finished above its 40-week line. If you want to try to buy low, you could take a swing at AAPL here, but as with most every stock, we’re just keeping an eye on it. Stop - 217

The Covered Call Trade

Buy Apple (AAPL) Stock at 242, Sell to Open April 245 Calls (exp. 4/17/2020) for $20, or a Net Price of 222 or less

Static Return: $2000 per covered call (9%)

Breakeven: 222

Covered Call Return (if assigned): $2300 per covered call (10.36%)

Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.

However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 222 or less. (In this case 242 minus 20 = 222. Or another example is you could pay 240 for the stock and sell the call for 18, which also equals 222)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

Open Positions

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