CNBC Pro options writer Michael Khouw: Apple's near-term premium is elevated, selling a strangle can subsidize a far-dated call
Michael Khouw notes that Apple trades at roughly 36 times FY2027 estimated EPS of $9.59 and that its options are also priced above average. The latter, he argues, is an opportunity: the premium collected from selling December 310 puts and December 375 calls can offset the cost of buying February 360 calls, allowing a lower net outlay to hold medium-term upside exposure to Apple.
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Apple's market capitalization recently topped $5 trillion for the first time, and the stock trades at nearly 36 times FY2027 estimated EPS of $9.59, well above the long-term average multiple. After pre-orders for the iPhone Duo, the long-awaited foldable iPhone, opened last Friday, estimated delivery times pushed back to late January within minutes. Combined with the launch of Homeview, the company's new smart hub, new MacBook Pro models, iPads with OLED displays, and the Mac Studio with associated chips, Apple is beginning to compete with the AI trade for investors' attention. The only problem is that a lot of good news is already baked into its valuation.
CNBC Pro options writer Michael Khouw observes that Apple options are priced above average too. He considers this good news: because elevated short-term premium can help finance the purchase of longer-dated optionality. His specific structure is to buy February-expiry calls at a $360 strike while selling December-expiry puts at $310 and December-expiry calls at $375.
The logic is straightforward. If Apple's share price stays between the two short strikes by December expiration, both sold legs expire worthless and the full premium received becomes net income, directly lowering the effective cost basis of the February call. If the stock rises above $360 by February expiration, the long call begins to profit, and after covering the premium already collected there is still positive return. The ideal path is for the stock to chop sideways while it digests its valuation, then move higher over a longer horizon.