Well you heard it here first (kind of, see below from May 12) and I didn’t even need to do any Asian “channel checks” or rip off a prototype from an unsuspecting nerd tipsy on two Zimas in a Cupertino bar…….Friday afternoon the tech blog, the Boy Genius Report posted a story stating:
In a note to investors on Friday, Jefferies & Company analyst Peter Misek claimed knowledge of Apple’s fifth-generation iPhone. While most are now in agreement that Apple will not unveil its new iPhone until September this year at the earliest, thereby breaking its annual summer release cycle for the first time, the feature set coming in Apple’s next iPhone remains a topic of debate. Misek’s channel checks found that the next iPhone will be called the “iPhone 4S,” and it will feature minor cosmetic updates, Apple’s A5 processor, better cameras and HSPA+ support. More interestingly, perhaps, Misek claims that the next-gen iPhone will be picked up by both Sprint and T-Mobile.
When the news/rumors hit late Friday, AAPL was already down in sympathy with the market, but saw selling accelerate, and the stock closed at almost 3 week lows breaking a key short term support level.
[caption id="attachment_1804" align="aligncenter" width="300" caption="2 Month AAPL Chart Provided By LiveVolPro"]
[/caption]
-Readers of this space know that I am an enthusiastic fan of AAPL’s products and generally of the company, but think the stock needs to have a little fear put in the minds of some weak hands…..For the past few months I have been much more interested in figuring out the next 50-75 points lower than the equivalent amount higher……Why is that? Well we all know why…….the majority of the investment community on the planet think it is going 50-75 points higher…….from my experience when a story is this one-sided it just can’t end well….I am not here to encourage you to continually try to pick tops, that can be an expensive proposition, but we can look for inflection points and tactically express bearish views in names like AAPL with cult-like followings.
-In my view any news about a delay of iPhone and a slight upgrade of the device could leave investors worried about the company’s ability to innovate without Job’s at the helm….and that’s what I want to focus on as it relates to my near term bearish thesis……if AAPL for one second gives investors a single reason to think that competitors are making inroads in market-share or innovation, then the stock price will be reset…..
TRADES: Thursday I suggested Buying the June 335/325/315 Put Butterfly for ~1.00, that has moved a bit and with the stocks almost 2% slide on Friday, you may want to consider the Jun 330/320/310 Put fly instead, you don’t to get the direction right and the magnitude wrong……
I want to look at a new trade as now that these rumors are out there I think uncertainty will rule until the developers conference starts on June 6 and could see the stock weak into the event…..Implied vol will stay elevated barring any news, which I don’t expect prior to the conference. If Butterflys are not your speed as you think a fairly low probability bet and don’t feel like threading the needle look to make a target directional bet. Consider Buying Put Spreads to Play for a big sell off on confirmed news of a iPhone5 or NO news about the new phone.
NEW TRADE: AAPL (stock 340.60) BUY the June 325/315 Put Spread for ~2.50
-Buy June 325 Put for 4.50
-Sell June 310 Put at 2.00
Break-Even on June Expiration:
Downside Scenarios: LOSERS: stock btwn 322.50 and 325 lose up to 2.50, stock above 325 lose all 2.50 or less than 1%.
WINNERS: stock btwn 322.50 (down 5%) and 310 (down 9%) make up to 12.50 or ~3.5%, Best Case stock 310 or lower and make full 12.50.
ORIGINAL POST MAY 12, 2011 @ 9;13am:
AAPL: Will This Be the First Summer In 3 Where Steve Jobs Doesn’t Convince You to Buy a New New iPhone?
AAPL is hosting their annual developers conference (aka massive geekfest) in San Fran starting on June 6. Goldman Sachs in a note to clients this morning referenced the fact that the days following this event tend to offer more volatility than the days following earnings:
“In each of the seven years, Apple shares have traded lower the five days around the WorldWide Developer’s Conference (average move -5.4%). To put this in comparison, the average move of Apple shares on earnings over the past eight quarters has only been +/-3%.”
They go on to suggest that June options are cheap and that they would be buyers of the at the money straddles.
“One month implied volatility of 22% is trading near historical low of 20% (going back to 1996) and versus recent realized of 18%. While options are trading 4 points over realized, typically rich for Apple, we see average move of -5% around the Developer’s Conference, combined with our analyst’s strong upside view on shares, as a key catalyst to buy vol, given the average daily move of shares +/-1.1%. If held to expiration, June $350 straddle buyers profit if shares close up 5.7% to $369.40 or down 5.4% to $330.60 on June expiration. Investors who hold straddles to expiry risk losing their entire premium paid.”
[private]
Personally I am not a fan of buying the straddle, for the reader at home, as the stock has been in a very tight range since gapping up on earnings last month and the vols were up a bit since they wrote that note.. While I think it definitely has the potential to move out of this range, and soon, I would rather pick a direction and increase my odds of success…….
[caption id="attachment_1670" align="aligncenter" width="416" caption="AAPL 3 Month chart Provided By LiveVol Pro"]
[/caption]
As stated above, on average Apple stock has moved lower by a 5% average. So let’s find some more reasons to make a bearish bet… luckily you’ve come to the right place
MY TAKE ON AAPL INTO THE DEVELOPERS FORUM:
In the quarter just reported the company demonstrated very solid execution, even in the face of adversities such as losing Jobs for an undisclosed time and massive supply constraints due to the situation in Japan… But what have you done for me lately??? On the product front the company has not added any real innovation to the iMac, Macbook or iPod lines in 2 years and more than anything else have cannibalized sales of those products with iPad, Macbook Air and iPhone respectively.
-As for the iPad, I am not certain that this is the revolutionary device that Steve Jobs would have you believe, I use mine less and less and didn’t even consider for a second upgrading to the iPad2. On the other hand, I couldn’t live without my MacBook Air, and feel that AAPL is neglecting one of the very best products the company has ever made. Competition in the tablet space will keep prices low for good on the iPad, but not a single PC OEM has gotten close to making a notebook a fraction as smooth and useful as the Macbook Air.
I feel that AAPL’s ability to differentiate themselves from competitors of the iPad will get harder and harder in almost every aspect other than the cool factor.
iPHONE–Ok here is the big one….investors and customers alike have gotten accustomed to AAPL introducing a new iPhone in each of the last 3 years in or around the Developers Forum. This year may be different.
Consider a few iPhone fun facts that lead me to believe that a June/July iPhone5 launch is UNLIKELY:
-AAPL introduced the iPhone4 at VZ in January, almost 7 months after the launch at AT&T and AAPL continues to sell the iPhone 3GS for $49.00 which they have never done in the past (sold a legacy iPhone after new one introduced).
-AAPL learned their lesson in 2007 by quickly lowering the price of the iPhone from $600 to $300 after the tremendous backlash form early adopters, I have to think they wont make this mistake again……how could they make another iPhone available at VZ in less than a year? They can’t. So VZ not likely to see a new iPhone until at least Jan 2012.
-So that brings us to AT&T, I have to think that when VZ struck their iPhone deal with AAPL there was some concession about if and when AAPL would release iPhone5 with AT&T and if they would try to sync up their release dates…..If I were VZ I would be worried that if AT&T got their new iPhone in June/July as their customers expect then VZ could see some churn from their customers who have been considering iPhone but haven’t had their crappy Blackberry contracts expire.
SO MAYBE THERE WONT BE A NEW IPHONE AS WE HAVE COME TO EXPECT EVERY SUMMER, AND IF THERE WAS ONE, COULD THEY POSSIBLY MAKE THE SORT OF LEAP THAT THEY DID FROM FROM 3GS TO IPHONE 4? COULD THEY REALLY INTRODUCE A NEW TRICKED OUT DESIGN AND OTHER HARDWARE ADVANCES FOR AT&T CUSTOMERS AND NOT VZ? COULD THEY POSSIBLY INTRODUCE THE LOWER END, LONG RUMORED IPHONE NANO, A SCALED DOWN CHEAPER VERSION, AND IS THAT WHY THEY HAVE KEPT THE 3GS AROUND TO KEEP THE LOWER END SEGMENT AROUND?
-If nothing comes, stock will sell off, almost certainly back towards the area that it bottomed out pre-earnings, $330-320. I want to make a low premium tactical bet that the stock retraces that move back towards $330-320, down about 5% from current levels and the very average that GS signaled the stock sells off in the days following the event.
TRADE: AAPL (347.00) BUY THE JUN 335 / 325 / 315 PUT BUTTERFLY for ~1.00
-Buy 1 Jun 335 Put for 5.25
-Sell 2 Jun 325 Puts for a total of 6.00 (3.00 each) and
-Buy 1 Jun 315 Put for 1.75
Break-Evens on Jun Expiration:
Upside: stock btwn 334 and 335 lose up to 1.00, stock above 335 lose all 1.00 or less than 1% of the underlying.
Downside: stock bwtn 334 and 325 make up to 9 or 10x your money, best case stock 325 down ~6% and make full 9.00….btwn 325 and 315 the payout trails off but you still make money and worst case stock is 315 or lower and you lose the 1.00 premium
TRADE RATIONALE: Trying to short AAPL over the 2 years has been an expensive and losing proposition. The GS note above is useful because it helps give some context to past performance around an event that I think has the potential for greater volatility than usual…..Look to make a tactical bearish bet that offers a high risk reward payout while isolating a price range that is achievable.