AAPL has been our most successful stock to trade in 2013. In fact, all of our trades since February have been winners, almost all on the long side (or delta neutral). We’ve been of the view since early in the year that value investors were gradually taking over ownership of the shares from growth investors, so we were consistently buying on dips with structures that were usually short volatility.
We currently don’t have an outstanding position in the name. Part of our dilemma today is that implied volatility in AAPL is near its lowest level of the past 2 years:
Last week’s 7% gain led to a pop in implied volatility, but in the mid-20’s, it’s still relatively low.
However, we are still generally averse to options strategies that are long options premium in AAPL given the fundamental backdrop – no major new product announcements in the coming months, a reasonable 14x P/E valuation for expected earnings growth of 10%, and a $500 billion market cap, the largest in the world. AAPL is simply an enormous company where major surprises are rare (an announcement of a China Mobile partnership is the one potential exception).
Looking at the weekly stock chart, the stock actually held its 200 week moving average and made a double bottom earlier this year:
On the daily chart, the stock hit its highest level of 2013 on Friday, above the $555 high on January 2nd, 2013. However, AAPL is now up more than 40% since its June 28th low, a huge move for a mega-cap company in less than 6 months. Moreover, the stock has now rallied into the $550-$650 area, which saw the most volume in 2012:
In fact, the 2 months with the highest volume over the last 2 years are March 2012 and April 2012. Much of the price action in both of those months occurred between 550 and 650.
I point that out because the stock is now at a price level where there are a lot of burned buyers from 2012 who will be thrilled to get out for break-even, after seeing the stock fall almost 50% from its 2012 high. With that in mind, in the short-term, I would be more inclined to play for consolidation (or maybe even downside for the first time in 2013), rather than a continuation of the recent rally.