It seems there is always a great deal of attention being paid to Apple Inc. (Nasdaq: AAPL).

Today I’m going to show you how Apple can give us a 50% gain – and that will pale in comparison to my backdoor play, which could net in excess of 100%.

I believe that putting Apple in the Dow Jones Industrial Average will help to stabilize its correlation to the market’s benchmarks even more.

You see, Apple is acting more and more like a bellwether stock, raising its dividend on an annual basis all the while buying back shares.

Apple’s equity often moves its own way, regardless of global or regional circumstances.

[ad#Google Adsense 336×280-IA]For example, in the last 200 trading days, AAPL shares moved with the S&P 500 just 12% of the time.

Apple almost looks like a defensive play when you think about it that way, and that’s exactly what hedge fund managers see.

But along with the move to the Dow comes perhaps the biggest factor in Apple’s expected rise: its product introductions…

This Chart Predicts Apple’s 50% Gain

The announcement of lighter and faster MacBooks is nice, but it’s the Apple Watch that is grabbing most of the headlines these days. I can tell you that watch is going to be on a lot of peoples’ “Buy” list, including mine.

The stock has peeled back from its closing high of $133 in February to its current price of around $124. The chart below shows us a possibility.

Last week we watched the overall markets seesaw back and forth in triple-digit moves.

Apple followed suit until late in the week, though moving lower it did see higher highs as the overall market fell.

This is a true sign of a stock looking to make a move to the upside.

The big question: is there a possibility that Apple stock could see $200 this year?

In that case we are looking at a return on investment of about 50% looking at today’s price vs. the target.

But there is a way to take that 50% gain and rocket right past it, even while taking a smaller price bite than the $125 a share it’s going to cost you to buy AAPL at today’s prices.

“Forced Marketing” Powers Huge Returns

How about 80% off, without a margin account? Yes that’s right, this is strictly cash, has less out-of-pocket cost and, more importantly, less out-of-pocket risk! Let’s first do a quick review, and discuss how we get a contract on AAPL for the rest of the year to buy the stock for $25 a share less than the market price…

Apple has incorporated a marketing pitch into its latest iOS update – something called “forced marketing” and this can push demand for the Apple Watch (which the new iOS touts through a watch-linked app) through the roof.

Anyway, to my mind and analysis this is just one more confirmation that this stock is set to sail to my target of $200 this year.

So the next question remains… how to buy the stock below market price, and make a killing in the end?

Here’s My 300% Return Strategy

There are a few ways to do this, but the simplest way is with a call option – a contract that gives the buyer the right to buy the stock from the contract seller at a specified price for a specified time.

Options aren’t just for employees or executives; these are listed on exchanges around the world, but you have to know a few things in order to pick the right strategy. This involves your target price of course, but also your target time frame as well.

And it doesn’t stop there; you also want to know if the price of the option is cheap or expensive.

For simplicity stake, let’s apply a call option to a lesson in options prices at a baseball game.

This weekend my wife and I had dugout seats at a baseball game. We paid about $100 for each ticket, while the guy right beside me paid $19 each. So for basically the same view, I paid five times as much for my tickets as he did.

That’s because he bought his before the surge of buyers (like myself) came in. Options aren’t that different, so it’s important to understand options and know when to pick them up before the herd does. With all the hype around Apple, believe it or not, there are still some quality options out there that are cheap!

I am looking to buy some Apple call options so I can control the stock at a price below the market between now and sometime next year.

How much can one Apple call option control?

Each standardized options contract controls 100 shares of stock. Let’s say that I buy one option contract on AAPL with a strike price of $100. That means I have a contract that states I can buy 100 shares of Apple stock for the price of $100 between now and the time the options expire.

Let’s also say that this option costs me $27 per share, how does that compare to the actual price of the stock?

Let’s do the comparison with the move in price.

031915a

As you can see, we have reduced our cost and total risk on this trade by nearly 80%, have a time horizon of 10 months, and if we hit our price target, the return on our original investment is more than 7 times that buying the stock!

The takeaway is that when options are used correctly, they can be a great investment!

— Tom Gentile

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Source: Money Morning