(Bloomberg) -- Apple Inc. shareholders should use bullish options to boost returns because shares of the iPhone maker may climb in the next four months on increasing smartphone and Macintosh computer sales, Credit Suisse Group AG said. Equity derivatives strategist Sveinn Palsson recommended shareholders use a “call spread” strategy, buying a January $180 call and selling two January $200 calls, both of which expire Jan. 15. Apple climbed 0.6 percent to $166.35 at 12:20 p.m. in New York, extending its advance this year to 95 percent.
Credit Suisse analyst Bill Shope raised his share-price forecast to $200 yesterday from $175, citing expectations for a “recovery” in Macintosh sales and that iPhone demand this year will exceed his earlier projection. He kept his “outperform” rating on the shares, which peaked at $199.83 in December 2007. “This trade will double the returns on Apple between $180 and $200,” Palsson wrote. “Should Apple advance to $200, one stands to earn returns as if it had advanced to $220.”
The net cost of the spread is about 90 cents, the New York- based strategist wrote. Call spreads reduce the cost of buying a bullish option because investors get money for selling higher- strike calls, which also caps return. In this trade, returns top out at $220, Palsson wrote.
Options are derivatives that give the right to buy or sell a security at a set price and date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.
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