Shorting out-of-the-money put options in Apple Inc. (AAPL) stock has been the best play recently, with AAPL trading at $272.93 on Dec. 30. Analysts estimate AAPL is worth between $287 and $327, with a potential +12% return over today’s price. Shorting OTM puts has worked, offering a 1% monthly income yield.

Investors can collect income by shorting puts and use it to buy in-the-money call options for a leveraged expected return. For example, buying a $260 call option for $3,000 could yield a potential profit of $2,890 if AAPL rises to $300 by July. This strategy could offer an almost 20% annualized return.

AAPL stock looks undervalued on a long-term basis, making shorting OTM puts a defensive way to generate income and set a lower buy-in point. More risk-tolerant investors can use this income to buy ITM call options for a leveraged return with higher risk. Shorting puts and buying calls could be a strategic way to play AAPL’s potential upside.

Read more at Barchart: Apple is an Analyst Favorite, But AAPL Stock Has Been Flat