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Buy Apple Calls on IPad Sales Growth, JPMorgan Says

Buy Apple calls on growth in iPhone sales, JPMorgan says
A customer tries out the new Apple Inc. iPhone 4 smart phone at a T-Com store in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

Investors should buy bullish Apple Inc. options because “rapid growth” in iPhone and iPad sales may help boost the shares by 58 percent through December 2011, JPMorgan Chase & Co. said.

Equity derivatives strategists Amyn Bharwani and Marko Kolanovic recommended purchasing October $250 calls while selling October $280 calls, a strategy known as a call spread that cuts the cost of the trade while capping potential profit. Apple gained 0.7 percent to $248.63 in New York.

The New York-based strategists cited JPMorgan technology analyst Mark Moskowitz, who boosted his Apple share-price forecast by 23 percent to $390 on July 1, calling Cupertino, California-based Apple “the growth story without rival.”

The October options give “enough time” for Moskowitz’s view to materialize, Bharwani and Kolanovic said. “We think it would be prudent for investors to gain upside exposure to the stock through call spreads, rather outright stock, as the stock is close to its historical highs.”

The trade will make money at expiration if Apple’s stock is above $261.60, the strategists said. The shares closed at a record high of $274.07 on June 18 and have climbed 18 percent this year following the introduction of the iPad. The Standard & Poor’s 500 Information Technology Index is down 11 percent since Dec. 31.

The company said June 22 that it sold 3 million iPads in the 80 days since the device went on the sale in the U.S. Apple said June 28 that it sold 1.7 million iPhone 4s in its first three days, a record for the newest iteration of its top-selling product featuring video calling and an updated body. The iPhone 4 made its debut in the U.S., U.K., Japan, France and Germany on June 24.

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