Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19
US Stock Market Hasn’t Cleared The Storm Yet - 8th Sep 19
Precious Metals Were Ripe for a Pullback - 8th Sep 19
Market Chart Patterns to Spot High-Confidence Trading Opportunities in a "Pinch"! - 8th Sep 19
Five Feet High And Rising - Stock Market Bulls False Sense of Security - 8th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

How to Profit From the Apple (AAPL) iBond Announcement

Companies / Corporate Bonds May 02, 2013 - 05:35 PM GMT

By: Investment_U

Companies

David Fessler writes: There was big news from Apple this week. And investors are eager to uncover exactly what it means and… most important… how to play the situation. The strategy is simple.

On the latest Apple (Nasdaq: AAPL) earnings call, Tim Cook announced that the existing share buyback program would be increased to $60 billion from the original $10 billion. The company has ample cash flow to support the increase, but Apple chose a different route. It’s diving into the debt market.


In what was the largest offering in history, Apple raised $17 billion through the debt sale. But does this massive amount of debt make Apple less attractive to shareholders?

Not at all.

And here’s why…

The deal was priced at just five basis points above LIBOR at the short end of the yield curve (three-year) and ended the day yielding slightly more than Treasuries. There is a difference of just 20 basis points. Today the three-year Treasury note is trading at 0.30% and Apple bonds trade at 0.32%.

In other words, bond investors believe Apple is nearly as good a credit risk as the federal government!

But the real surprise is at the long end of the curve.

The premium for being locked into Apple for 30 years instead of Treasuries is only 1%. Putting real numbers to work, the 30-year T-Bond trades at 2.83%. And Apple is priced at only 3.83%.

Investors think Apple’s bond issue is a close comparison to U.S. government debt. This is amazing considering that 20 years ago, people said Apple was going out of business!

Putting a Floor Under the Stock Price
For investors this means Apple has put a floor under its share price. Would you want to short the stock knowing that the company could jump into the equities market and create a $10 billion short squeeze at will?

But, even though there is an implied floor, you may not want to chase the stock here.

Considering Apple’s recent lackluster earnings report, the increasing competition from Samsung (OTC: SSNLF) and the possibility that the new iPhone will not be announced until September, the stock could be a value trap.

One way to play this week’s news is to sell covered calls. But a big product announcement could cause a dramatic rally and result in a strategic position being pulled from your account.

Another option is to dollar-cost-average into the position. This would be a good approach if you purchased the stock at a price above today’s and would like to reduce your cost basis.

But there is an even better way to profit from the event…

Get Paid to Name Your Price
If you are simply looking for an investment to capitalize on the hard deck that was created by the increased buyback, you could also sell longer-term puts.

One interesting contract is the January 2014 put with a $400 strike price. As I write this, the contract is selling for $25.95, so the effective share price if the stock was put to you is $374.05, $16 below the recent low of $390.

Since the contracts are out of the money, you would be tying up a relatively small amount of buying power.

For the $400 strikes, the buying power required would be $8,000 (20% x $400 x 100). The upside is $2,590 if the option expires worthless in January – but you must be ready to have the stock put to you if the price drops.

It’s a quick-and-easy way to take advantage of yet another historic move by Apple.

Good investing,

David

How to Profit From the Apple (AAPL) iBond Announcement, 5.0 out of 5 based on 1 rating

Source: http://www.investmentu.com/2013/May/how-to-profit-from-the-apple-aapl-ibond-announcement.html

http://www.investmentu.com

Copyright © 1999 - 2011 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules