Take Apple (AAPL), Microsoft (MSFT), Facebook (FB) and Amazon.com (AMZN).
Each of these mega-sized stocks has eclipsed their February peak and has gone on to new all-time highs.
Together, the combined market capitalization of those giants is more than $5 trillion and represents almost one-quarter of the value of the S&P 500.
These four stocks also belong to the NASDAQ Composite which is pacing the best quarterly performance since the dot.com craze in 1999. The Comp just snapped an eight-session win streak, the best since December.
The Nasdaq Composite also happens to be the only one of the big three stock market averages to eclipse the February highs.
The Dow Jones Industrial Average (-14%) and the S&P 500 (-10%) still remain below their previous highs and are still considered to be in correction territory.
For sure, the best performing segment of the stock market has been large-cap technology growth stocks.
But for many individuals, investing in these stocks is out of reach because of the high share price.
The cheapest (nominally speaking) of the bunch is Microsoft (MSFT) at $198 per share.
The most expensive is Amazon.com (AMZN) where just one share costs more than $2,700.
Then, there is the valuation concern.
These stocks have already gone on a strong run and are technically short-term overbought.
So buying in at the current levels may not exactly feel like a bargain.
You could always wait and hope to buy-in to these stocks at a lower price.
But what if that pullback never really materializes?
Will you kick yourself as you watch these stocks move even higher?
The good news is that there is a strategy that could allow you to gain bullish exposure to these large-cap technology stocks and at a significant discount.
And even if you don't see your discount turn out... you're guaranteed to get paid handsomely for trying.
And let me tell you this… the current market conditions are perfect for this stock-buying technique.
The technique I want to show you today involves selling out-of-the-money Put options on stocks and ETF's that you want to own but don't own yet.
And right now, market volatility is relatively high which means options premiums are expensive.
So as option sellers, we'll benefit by collecting more cash.
Now you may think that selling Put options is risky, or even dangerous.
But done the right way, selling Put options can be a highly effective strategy to buy high quality stocks and ETF's at a meaningful discount, or to generate a high return on your investment cash.
Here's how it works...
Let's say we're interested in putting our investment dollars to work in MSFT, AMZN, FB and AAPL.
But rather than taking four individual positions, we could instead look to the Invesco QQQ NDX 100 Fund (QQQ) as the preferred investment vehicle.
This QQQ exchange traded fund tracks the NASDAQ 100 Index.
It also has a concentrated exposure to these four large-cap technology stocks, nearly 40% of the weighting.
And if we want to add Alphabet (GOOGL), the parent company of Google, into the mix, the weighting approaches nearly 50%.
In other words, we can create bullish exposure to an elite handful of large-cap technology growth stocks by focusing on just one exchange-traded fund.
Okay, now that we found the security, here's how the strategy works…
Let's say we are interested in taking a 100 share position in the QQQ. The exchange traded fund is recently trading around $244 per share.
For every 100 shares of QQQ you'd like to own, you'll sell one put option contract. (Since we are interested in a 100 share position, we don't want to sell more than one Put option contract.)
You'll also want to target a strike price at a level where you'd be happy to purchase the security should it be "put" to you.
You'll also want to target a relatively nearby expiration date, typically less than 90 days away.
In this example, we could look to sell ONE August 227 strike Put option for $6.25.
By selling one Put option contract, we get to immediately collect $625 in premium. That cash is ours to keep. It's immediately credited to our brokerage account and the funds are usually available the following day.
In exchange for receiving that upfront cash, we're obligated to buy QQQ at $227 per share between now and August expiration, which is in 57 days.
Now think about what we've just done…
We're obligated to buy QQQ at $227. Currently, it's trading around $244 or about 7% higher.
And we got paid $625 in upfront cash.
Now let's say the stock does indeed trade below $227 and we are "put" the QQQ.
Well in that scenario we should be okay with that because our original intention was to gain exposure to a handful of big-tech growth stocks.
Our cost basis would actually be further reduced by the $625 in cash we pocketed. So factoring in the cash payment, we're buying into the position for $220.75 per share, and not at the current market price of $244.00.
That would represent a cost basis below the 50-day moving average which offers a substantial discount to where it's currently trading.
Now, what if the stock doesn't fall below $227 at expiration?
In that scenario, we won't get to own the QQQ at a discount, but we have $625 in cash to show for our foresight and savvy.
Since we set aside $22,700 on a cash secured basis (against the possibility that we would in fact have to take delivery of the stock) that $625 premium we collected equates to a +17.3% annualized return over the life of the contract.
And just so you know, this is not the only way to pull cash out of tech giants.
In fact, at 1PM EST today my friend and colleague Chris Rowe is putting on a special investor presentation that dives deep into that topic.
Chris is going to show you how to turn $930 into $15,866 -- while cutting your risk to the bone.
That's what I'd call wringing some big gains out of "big tech".
If you hurry you can still save a FREE seat in Chris' event.
Until next time!
Costas Bocelli
True Market Insiders
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