This week’s Apple trading strategies (10/8-10/12)

A place for Apple 3.0 subscribers to share their ideas.

To get things rolling, here’s Loup Ventures’ Gene Munster on CNBC on why David Einhorn was wrong to get out of Apple (plus Charter Equity’s Edward Snyder on why Einhorn was right):

Einhorn selling Apple sign of a shift in investor psychology, says Gene Munster from CNBC.

Disclaimer: Since I’ve never owned Apple and have never been much of a trader, I have nothing to add. Don’t blame me if you drain your IRA doing something you read about here.

See also: From top to bottom, Apple plunged 5.5% last week

7 Comments

  1. Robert Varipapa said:
    Wish you guys would tell me when to sell. Made a pile of money buying TSLA before the SEC settlement and dumping just in time before the recent plummet. My problem is I love APPL too much and never think it will go down :-/

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    October 7, 2018
    • Most of the active traders here are holding on to their shares and working options trades off their holdings. But you probably knew that.

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      October 7, 2018
    • Fred Stein said:
      Don’t sell. Ignore short term issues even global calamities.

      Apple’s full stack IP from chip design to the xxKits for Apple developers is far ahead of anyone. And Apple have an even stronger lead in wearables. Plus under Apple’s stack lie the world best chip foundries, image sensors, etc; and we all know about the loyalty of their users and App developers.

      Thanks for asking. You made me summarize my bull case.

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      October 7, 2018
    • Jonathan Mackenzie said:
      I think TSLA and AAPL are similar stocks in some ways. For example both are good targets for a directional strategy that seeks to shave time decay while waiting for the long trend movement to play out. The major difference is that I think AAPL’s long term trend is up, but I’m betting that TSLA’s long term trend is sharply down.

      An example of the kind of “directional strategy” that I am talking about is buying in the money LEAPS (calls) and selling out of the money near term calls (1-3 weeks out) repeatedly over time. In its ideal form, you are always selling calls at a price the stock will never reach and still hopefully enjoying a steady increase in the share price over time. AAPL has been a great stock for this kind of directional strategy (but when AAPL has changed directions, it has done so dramatically, so like all option plays, this can go upside down.)

      For TSLA, if the thesis is a long trend decline, the idea would be to buy in the money LEAP puts, and sell out of the money near term puts while waiting for the final financial shoe to drop.

      Traders love these stocks, but the I think of the described directional strategy as “trader-light”. You’re making a long term bet on a directional trend and you are selling short term bets on a number you think the stock will never achieve. Even when your short term trade works against you, your long term trade is intact. In fact if your short term covered calls were priced conservatively and are still underwater, then by definition your in the money LEAPS are doing quite nicely. In this case you take the loss and close out the covered calls, buoyed by the fact that your LEAPS are further in the money. Then you sell calls another week or two out, targeting a new number you think the stock won’t achieve. Eventually you will either get to keep the premium or the underlying stock is on a tear and keeps taking out numbers you thought nigh impossible. In this case you are losing nickels in your short term trade and gaining dollars in your long term trade.

      The devil is in the details..

      In order to sell near term calls that are pretty safe you can’t collect much of a premium. In order to make a few bucks after commissions, it helps to be selling 10 or more calls. So that implies 10 or more LEAPS and this certainly can tie up some funds.

      In its ideal form you win on most of your sold calls and you win (big) on your long term trend call (as you would have for instance if you bought AAPL in the money 2018 calls two years ago). But that’s not why I like this kind of trade. I like it because if you are prudent about selling pretty far out of the money, you end up effectively reducing the cost basis of the longer term bet. So it reduces the cost of being wrong on the trend while only clipping upside during sudden upticks in the stock. (And sudden upticks are generally pretty easy to live with.)

      There are a million ways to trade AAPL or any stock. I’m not advocating this as a better strategy than any other. But I personally enjoy where it sits on the risk reward spectrum.

      And of course, options don’t pay dividends. IMHO owning the stock is the most important idea. These option strategies are just to keep it interesting, I think.

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      October 7, 2018

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