Apple Inc. (NASDAQ:AAPL) investors should be buying protection for their investments, Dan Nathan advised in a segment of Options Action on CNBC.
Nathan said that even though Apple Inc. (NASDAQ:AAPL) has been a great investment for those who are currently long on the stock, it might be worth looking at protecting their positions. Specifically, Nathan suggests taking out put options on the company.
“Option prices are very cheap right now. […] And I wish I was long Apple. I’m not hating on Apple right here but with the stock at $114, you can buy the January $110 puts for $2.20. That’s 2% of the underlying stock price here – it’s nothing – and you have protection below $108 essentially for all intents and purposes. The stock was trading there 4 days ago,” Nathan said.
Nonetheless, the CNBC contributor noted that Apple Inc. (NASDAQ:AAPL), one of the most profitable companies of 2014, has had a very substantial rally, even just in the past month.
The company’s stock went up 20% in this period which translates to the iPhone maker increasing its market capitalization by $135 billion. Nathan said that this is equivalent to market capitalization of The Home Depot, Inc. (NYSE:HD) a company that’s expected to post $80 billion in sales this year compared to Apple’s $200 billion.
Add to this the fact that Apple has gained $280 billion in market capitalization on the year, the equivalent of the market capitalization of market darling Alibaba Group Holding Ltd (NYSE:BABA).
Apple Inc. (NASDAQ:AAPL) has had a good run with consolidations and breakouts, Nathan said, and people still expect the company to perform well. The company is selling a lot of iPhone 6 smartphones and sales of its product range is expected to get a boost from the holiday season, he added.
These make the company a great investment for those who bought its shares. There’s no reason why people should turn bearish on Apple, Nathan said, as the company continues to work.
Nonetheless, he said that protection wouldn’t hurt particularly because the company’s rise has resulted in the drop of options prices for the company. The price of options is back to 52-week lows, Nathan added.
“I’m [about the adding] of a little bit of prudence here. People have a lot of gains [and] they don’t want to sell stocks that are up 42% in the year but I think it makes sense, when you think about it, to add a little protection,” he said.
He said that if you own Apple, that’s great. Nonetheless, he cautioned that not all trees grow to the skies.
Donald Chiboucis’ Columbus Circle Investors reported a stake of about 4.89 million Apple Inc. (NASDAQ:AAPL) shares by the end of the second quarter.