New Trade: AAPL: One more thing. iLotto Apple’s Earnings.

by Dan January 24, 2012 3:47 pm • Commentary

Ok here is my trade, it is the Punt of All Punts, the Mother of all Punts……..

I think there is a high probability that the company beats Q1 and offers decent guidance and in that case the stock goes up, prob in line to the implied move which is about 5% to about $440.

I think there is a much smaller probability that the company misses consensus for the 2nd quarter in a row the stock will dramatically out perform the implied move… possibly to about $380 or down about 10% not to different than what GOOG did over the last few days.  I WANT TO ISOLATE THE $380 LEVEL AS A HUGE SUPPORT LEVEL IN THE SMALL CHANCE THE STOCK IS DOWN ABOUT 10% FOLLOWING EARNINGS…

I don’t want to commit a ton of premium to this, but want to have a little skin in the game…..if the stock opens up I am gonna short it, and if it is down on a beat but “not good enough” i would probably buy it….so i want to be prudent here…..


AAPL $422 Bought the Jan weekly 385/380/375 Put Fly for .20

-Bought 1 Jan 385 Put for 1.37

-Sold 2 Jan 380 Puts at  1.96 ( .98 each)

-Bought  1 Jan 375 put for .79

(edit- we initially wrote these prices up wrong showing a 20c credit rather than debit. If that was the case we’d have recommended the trade in much bigger size, possibly selling all your assets to enter the trade. Corrected now. Thanks for spotting it goes to subscriber JW)

Break-Even On Jan 27th Expiration: this Friday:

– profits btwn 384.80 and 380 make up to 4.80 with max gain at 380 down about 10%, profit trails off btwn 380 and 375.20.

-losses btwn 375 and 375.20 lose up to .20, losses btwn 384.80 and 385 lose up to .20 and max loss of .20 below 375 and above 385.



MorningWord 1/24/12: AAPL Edition

9:09 AM EST – JANUARY 24, 2012 BY  (EDIT)

MorningWord 1/24/12: Some of you may have some things on your mind today, like a Greek debt deal, or the start of the FOMC’s 2 dayer, or maybe some of you are still mourning the loss of your Niners or Ravens, well I for one care about one thing today, and that’s AAPL  (422.14↓-1.23%)‘s fiscal Q1 to be reported after the close.  Not to sound like and alarmist, but tonight’s report and the guidance given, and any subtle changes from the way things used to be done under Jobs, will likely set the tone for investor relations in the post-Jobs era for AAPL. There are a few things that are on the tips of large investors tongues that sooner or later will need to be addressed by new CEO Tim Cook, tops on the list, and something that Jobs wasn’t partial too, articulating a plan for their massive and growing cash of hoard.   That won’t likely be answered anytime soon, as most past investor concerns that Jobs shunned won’t be changed for the time being, but what is pressing is to see if AAPL can re-capture the 2 million “lost” units of iPhone in their Q4 that, to be fair, came in lower than aggressive Street consensus and iPads that just seemed to plateau a bit.

AAPL as a stock has become a behemoth of the highest order. With the stock at $427 it has a market cap of about $398 Billion. To put that in perspective, that is double GOOG  (579.28↓-1.07%)‘s $189billion and more than 30% higher than MSFT  (29.36 ↓-1.23%)‘s and IBM  (191.74↑0.93%)‘s market cap of about $250billion & $224billion.

To be a bit of a contrarian, when a company can do no wrong and is trading at all time highs, despite their pristine balance sheet, off the chart growth expectations and rock bottom valuation, I CAN THINK OF NOTHING ELSE THAN SHORTING IT AT ALL TIME HIGHS HEADING INTO A MUCH ANTICIPATED EVENT.  Now I would obviously not bet the farm on this, and if the stock was sitting at all time highs as it was in OCT I would be hard pressed not to do this in a defined risk manner.

The chart below shows the previous 3 all time highs made in July, Sept and then Oct of 2011, all followed by double digit drops in the stock that average about 14% per sell off.  Are we setting up for a similar move where obviously a ton of good news is in the stock and expectations are running fairly hot??

1 YR AAPL chart showing 3 Previous All Time Highs from Bloomberg LP


Many readers know that I feel strongly that the next couple of years for the company and thus the stock are likely to be far more difficult than the last couple……competition is coming from everywhere in the smartphone and tablet space, and while I am still of the mindset that their products are generally superior to most android offerings, and certainly all MSFT and RIMM offerings, at some point these inferior competitors will just try to compete on price and eventually erode AAPL’s margins……

The problem with a structural short in the name is the amazingly bullish factors I listed 2 paragraphs higher, they will soon have $100 billion in cash on their balance sheet with no debt, almost ONE HUNDRED DOLLARS IN CASH IN THE COMING MONTHS, and what appears to be fairly healthy leads in the most rapidly growing segments in all of consumer tech, so timing will be everything.

The implied move in the options market has ticked up a bit to about 4.8% and I feel all the risk is to the downside as we head into the print.  If AAPL blows the doors off iPhone and iPad as many expect in what was a healthy holiday selling season, then the stock goes up. But at some point investors are going to need to take profits as the stock is just now capping a 2 month almost 18% rally from the December lows……throw in a gap opening tomorrow morning in line with the implied move and this stock has gone parabolic.  But if the company disappoints consensus estimates for the second quarter in a row, which would be the first time this has happened since 2003 or 2004.  If that happens you will see a sell off far exceeding the implied move.   Tim Cook will not be able to spin a disappointment the way Jobs would have and this is why while I think there is a higher probability that the qtr is inline to better (coupled with their usual conservative guidance), I think the trade where you get the most bang for your buck is leaning short into the print.

Once we get through tonight’s report the next catalyst will be a March/April iPad3 launch which I expect to be a bit evolutionary and possibly somewhat conciliatory if they introduce a smaller form factor to do battle with the Kindle Fire and other lower priced models.   After that we have a bit of a wait until a dramatically redesigned 4G iPhone in October and what will likely be some Mac refreshes here and there, with a likely really expensive multi-touch iMac on the way.  So there will be a lot of waiting (and hoping for those long the stock) this year to see if the company can continue to make “revolutionary” products rather than the “evolutionary” iPad2, iPhone5 and recent MacAir refreshes.

In the last few weeks I have suggested a couple collars in AAPL to protect longs, on short dated in Feb, and one looking out to July.