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Tuesday, June 3, 2008

Can't Resist Apple, Way Too Juicy, Way Too Ripe (UPDATE1)

This is an update on the post Can’t Resist Apple: Way Too Ripe, Way Too Juicy.

Talk about shorting AAPL always offends a surprising number of people. (It’s a great company with great products but don’t you dare fall in love with the stock.)

So the first short attempt worked out. I started buying July $180 Puts as prices continued to move from $180 straight up to $190 and change. I traded around my core position by buying additional puts in regular intervals on the days AAPL was up and sold them back off on the days AAPL was down.

$170 is the Bull trendline from the lows of $115. I did not expect AAPL to break that on the first attempt, especially without a catalyst (some kind of Bearish news). So when AAPL finally pushed down to $170 and failed, I sold off the last of my puts.

Analysts came in and upgraded AAPL. The bounce was fast and furious, jamming AAPL back up to $190. But momentum has seriously started to fade and the uptrend is now in danger of being violated. I like the chart so much I bought Jan 09 puts at $180 and $170. That position is now on auto pilot.

While I trade the charts, I do keep the fundamentals in mind. I don’t get into the details too much, but just enough to be facing the right way on a broad macro level.

Ok. So, you’re house price is falling so fast you still can’t believe it and your mortgage is about to reset to a rate that ‘tastes like vomit’. You’re worried about your job security, despite the fact it costs you so much now just to drive to work that going in for a half day isn’t even worth it. You now deeply regret buying the SUV you don’t actually own, because you’ve traded your previous cars in so frequently that the lease payments on this one almost equal your pre-reset mortgage payments. How likely are you to be both willing and able to load up on shiny, expensive consumer discretionary items with big monthly costs such as the Apple iPhone?

Which is more probable, a surprise to the upside in a stock priced to perfection in a deteriorating economy or a surprise to the downside?


Anonymous said...

Great post!

Anonymous said...

absolutely agree.
The iPhone has bombed outside the USA and I expect the 3G version to struggle similarly. They're a great company but the price is $40 too rich.

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